You are now a business
The IRS treats every freelance gig as a trade or business. You will file Schedule C with your personal Form 1040. If your net profit reaches $400, you'll also file Schedule SE for self-employment tax. There is no entity formation requirement to be a freelancer — the sole proprietorship is automatic.
Save for taxes
A safe rule: set aside 25-35% of every dollar received into a separate "tax savings" account. The exact percentage depends on your income tax bracket, state, and SE tax exposure. Erring on the high side means you have funds for Q1 estimated payments without scrambling.
Open a business bank account
Even as a sole proprietor without an LLC, open a separate business checking account and run all client deposits and business expenses through it. This single change makes recordkeeping, deduction substantiation, and audit defense dramatically easier.
Track expenses from day one
Software (QuickBooks Self-Employed, Wave, FreshBooks), spreadsheets, or even a notes app — pick a system and use it. Common deductible categories: home office, internet, phone, software subscriptions, professional development, contractor payments, business meals, vehicle mileage, and supplies.
Make Q1 payments by April 15
If you started freelancing this year, you owe estimated tax payments. The first installment for the year is due April 15. Make a reasonable estimate (or use the prior-year safe harbor if you had W-2 withholding sufficient to cover prior-year tax). Failing to estimate triggers the underpayment penalty.
Common mistakes worth avoiding
The recurring mistakes filers make on this topic cluster in three patterns: (1) optimizing for current-year tax at the expense of multi-year tax, (2) treating the choice as binary when the IRS framework actually allows nuance (partial elections, hybrid methods, year-by-year reassessments), and (3) deferring the analysis until the return is due rather than running it during the year when the result can still influence behavior. A short annual review — even thirty minutes — catches all three failure modes and replaces vague intuition with documented reasoning.
When to bring in a professional
DIY tax software handles most small-business returns competently, but a handful of situations reliably justify a CPA or enrolled agent: an entity formation or election, a multi-state filing situation, a significant fixed-asset purchase that triggers Section 179 or bonus depreciation modeling, a retirement-plan setup, an IRS notice or examination, and the year of an entity sale. Outside those situations, software plus an annual half-day of personal review produces a defensible return. The cheapest professional engagement is a one-hour consultation rather than a full-service tax-prep relationship.