Best Self-Employed Tax Software for 2022: Attention, Freelancers and Gig Workers – CNET [CNET]

Tax software helps you accurately complete your tax return and file it with the IRS in order to receive your potential tax refund or to pay any taxes you owe. The tax code for 2022 includes several changes to deductions and credits. The best tax software will take into account all the tax rules and laws to automatically calculate your tax refund.

Tax software will either file your tax return with the IRS electronically or allow you to print your tax return for mailing. Tax programs also let you enter your direct-deposit information so that the IRS can send money straight to your bank account.

Instead of receiving regular payments with taxes withheld like salaried employees of a company, freelancers are paid by anyone who hires them, and taxes are not automatically withheld. That means freelancers will receive different tax forms for their income and also need to save money throughout the year to pay taxes. In fact, most freelancers are expected to pay their estimated taxes quarterly.

All freelancers are considered small business owners by the IRS, meaning they are required to pay the federal self-employment tax — 15.3% for 2021 — in addition to regular taxes on income. They are also eligible for a host of self-employed tax deductions, such as for office supplies, vehicles, Internet and travel.

In short, working as a freelancer generally makes filing your tax return more complicated. Quality tax software can explain what freelancers should do with all of their forms and guide them through the specific tax issues that arise when filing their tax returns.

If you’re self-employed or a gig worker, you’re allowed to deduct “both ordinary and necessary” expenses related to your work, per the IRS. An ordinary expense is one that’s familiar to anyone in your industry and claimed by other self-employed tax filers. A necessary expense is one that’s absolutely required in order for you to work.

Depending on the specifics of your work, you can deduct all sorts of expenses. Office supplies, travel costs, software, internet service fees, vehicle expenses, insurance costs, advertising and legal services are some of the most common business expenses for the self-employed.

Accurately organizing and reporting your business expenses is a good way to reduce your overall tax burden and increase the size of your tax refund. Be warned, however, that self-employed business deductions are a red flag for IRS audits — make sure to keep all of your receipts and documentation.

Almost all American taxpayers can file their tax returns for free, and some have a choice of several options. If your adjusted gross income is $73,000 or less, you can use the IRS Free File program.

Both Cash App Taxes and FreeTaxUSA will let anyone file a federal tax return for free. Cash App Taxes also offers one free state return, while FreeTaxUSA charges $15.

Other commercial software like TurboTax and H&R Block do offer free versions of their software, but they are limited in scope and service. Most free versions of paid software do not include the forms that self-employed taxpayers need to complete their tax returns. The Federal Trade Commission has recently filed a lawsuit against TurboTax for misrepresenting its free services in its advertising.

Freelancers generally receive IRS 1099-NEC forms that detail their taxable income from various payers. Less common are 1099-MISC forms that report miscellaneous income like rents or attorney payments.

If you earned more than $20,000 or had 200 or more transactions from online payment services in 2021, you’ll receive a 1099-K form. Many more freelancers may receive that form for next year’s taxes, when the limiting amount will be reduced to $600.

When filing their tax return, most freelancers will need to complete IRS Schedule C, Profit or Loss from Business. Self-employed workers should use that form to report their taxable income and business expenses for tax deductions. 

CNET reviews tax software by comparing products across a set criteria. We use the software to prepare personal tax returns, examine tax products’ terms and offers, communicate with software representatives to resolve questions about products, compare feature sets and analyze each software for its effectiveness in common tax situations.

We consider the features and functionality of the tax preparation software, the user experience, the software interface, website performance, quality of help and support, and the value based on price. We are also looking for and evaluating specific features, including file importing or photo capture of forms, number and type of available IRS forms and schedules, contextual help, desktop and phone/tablet compatibility and syncing, professional tax assistance, maximum refund and accuracy guarantees, live support and security protections.

Specifically for best tax software for freelancers, we consider the number and types of IRS forms and schedules related to freelance work that are included with tax software, the level of support and help directed toward freelance tax filers, and the additional cost required of self-employed tax filers.