7 Tax Moves Freelancers Should Make Before They Cross Six Figures
Sam's List Editorial | 2026-06-23
7 Tax Moves Freelancers Should Make Before They Cross Six Figures The freelancer's first $100K is the most expensive money they'll ever earn. Not because the work is hard — because the tax treatment is brutal and most freelancers don't know that until April of the following year. The hit is real: 15.3% self-employment tax on every dollar of net income up to the Social Security base, plus federal income tax, plus state. Run the math at $80K of net income and the combined tax bill is somewhere north of $20,000. Make the wrong moves before that, and the next $20K of income gets eaten by the difference. Here are seven moves to make before six figures lands. 1. Quarterly estimates from the start, not from the IRS notice Most new freelancers don't know about quarterly estimates until they get a year-one underpayment penalty notice. The federal estimated-tax rules under IRC §6654 require self-employed taxpayers to pay tax in installments — April 15, June 15, September 15, and January 15 — or face a penalty. The safe harbor: pay at least 100% of last year's tax (110% if AGI exceeded $150,000) or 90% of this year's, whichever is lower. A freelancer earning $60K of net income in year one likely owes $13,000 in combined federal tax. Without estimates, that's a check due in April plus a penalty stacked on vetted. With estimates spread quarterly, it's $3,250 each quarter — annoying, but not a crisis. The cleanest setup is a separate tax savings account funded from each invoice deposit (30–35% is a reasonable rule of thumb for most freelancers). The IRS gets paid before the freelancer ever sees the money. 2. SEP IRA or Solo 401(k) to turn a deduction into retirement savings A SEP IRA lets a freelancer contribute up to 25% of net self-employment income (after the deduction for half of SE tax), capped at $72,000 for 2026 and adjusting annually. A Solo 401(k) allows the same employer contribution plus a $24,500 employee deferral in 2026 (indexed for inflation under IRC §415, with current-year limits set by Notice 2025-67) — useful for freelancers who want to maximize earlier in their career when income is lower. On $80K of net SE income, a SEP IRA contribution can run roughly $14,800, which is a deduction against ordinary income worth about $3,300 to a 22%-bracket taxpayer plus state tax. The freelancer keeps the money in retirement instead of sending it to the IRS. The contribution has to be made by the tax filing deadline (including extensions) to count for that year. The account itself usually has to be opened by the end of the calendar year for a Solo 401(k); SEP IRAs...
