The tale of the freelancer who owed $40K in taxes

A freelance friend scared me with this story

Author

Diana Kelly Levey
February 12, 2025

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When I got let go from my full-time staff editing job in February 2013, I was hurt, angry and scared.

But I met with as many people as I could to get some ideas about what I should do next.

(I wasn’t too thrilled about the idea of securing another media job only to be in a “last one hired, first one fired” type of situation. My bruised ego couldn’t take it.)

So I talked to a seasoned editor who had been full-time freelancing for a number of years.

Her warning?

Set aside money all year long for those “first-year of freelancing full time” taxes.

She said she earned a great salary working on a few projects her first year when she was full-time freelancing and so she pocketed, or spent that “gross” income.

So when she did her taxes that first year she was shocked to discover Uncle Sam was looking for about $40,000 in tax money.

(Gulp.)

She didn’t factor in a 30% or so tax rate for each assignment and that she’d have to pay self-employment taxes, too.

I had another freelance friend who owed a lot of money to the government at tax time and had to set up a payment plan for the rest of the year to pay thousands of dollars of the previous year’s taxes owed (and penalties for late pay) as well as pay estimated quarterly taxes for that year.

I remember talking to her and she was burnt out from working so much while feeling like she wasn’t even reaping the financial benefits of the work she was doing.

Not a fun position to be in.

I share these stories not to scare you straight about paying taxes as a freelancer but so that you don’t make the same mistakes these freelancers did.

The first year of freelancing I earned about 15% more than I did during my previous full-time job and I set aside $25,000 at the end of the year so I would have a buffer.

I think I owed around $18,000 at tax time.

Get some of the best tax tips for freelancers I have in this guide on my site.

It’s based on paying taxes in the U.S. as an American freelancer so always check out your state and country’s tax tips.

(Note, I’m not a lawyer or accountant so always consult professionals in those fields when it comes to paying taxes.)

Thanks for being a reader.

Diana

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What’s Happening in My Business & Life

  • I’m a judge for the American Society of Business Publication Editors and reading a lot of interesting B2B content. I’m also part of a cohort with that group and we talk business once a month on a Zoom call. It’s been fun.

  • Must-read on BestFreelanceTips: 10 Passive Income for Freelancers Streams (including the ones I have!)

  • Marketing move I’m doing this week: Following up with clients from the past three years to see who needs help and getting in touch with B2B brands in the veterinary space.

  • What I’m watching: How to Get Away with Murder (Amazon Prime). It’s based in Philadelphia where I’m from and my husband jokes I’m doing “research.”

Freelance Jobs, Contract Jobs, or Remote Jobs I Found

(These were active and available within a few days of this newsletter going out. I have no connection with them.)