Tax, Accounting and Financial Guide for Freelancers, Self-Employed Individuals and Small Business Owners in NYC
Before You Start
Cash Flow
Entity Formation

Are you thinking about becoming a freelancer? You would love to set your own schedule, manage your own priorities and work for yourself at home – instead of slaving for a difficult boss in a stressful workplace. But can you successfully make the leap into self-employment if you’ve always worked for someone else?

Here is advice from New York CPA Jonathan Medows for fence-sitters who would like to go freelance, but just aren’t quite sure they can cut it.

Q: What things should someone consider before going freelance?

A: Bear in mind that you have to be able to generate work for yourself as a freelancer. Just building a website does not mean that you will get jobs. You should have some connections or have very modest expectations.

Q: When should someone make the leap from employee to self-employed?

A: Don’t quit your day job until you have so much freelance work that you can’t handle both. This is how I built up my business, working nights and weekends until I absolutely couldn’t do it any longer. Wait until you’re forced to make that leap. It takes time to establish yourself as a freelancer, so give yourself that time. If you quit your day job and go freelance on a full-time basis, without sufficient income, it can be very stressful.

Q: Describe someone who is likely to be a successful freelancer.

A: I would say somebody who has industry experience, someone who is detail-oriented and organized, someone who can stay on top of things without supervision. A successful freelancer has professional confidence and is able to get business and land contracts. You have to be able to sell yourself and make new relationships with potential clients. If you’re not comfortable doing either one, freelancing probably is not for you.

Q: How do you know if you can generate clients before you start out on your own?

A: One way to find out is to assess whether you have good relationships with clients at work. If you do, that’s a good character trait for a freelancer. When I did my MBA at NYU I was only 24 years old. Because I wanted to get school out of the way, I was looking for jobs with only two years’ experience while most other classmates had five years.

I had to really hustle for a job and chase after people. I was miserable and depressed while doing it, but looking back it was the best education I could have gotten for entrepreneurship. That time taught me to be tenacious and bold and it laid the foundation for the good hustling skills that are needed by freelancers.

Q: One of the big obstacles to freelancing is paying for health insurance outside of the traditional employer group.

A: Yes. Buying health insurance privately is very, very expensive. This is something you really need to think about before you get started. Can you afford it? If you have a spouse who’s covered by employer-sponsored insurance, can you get on her or his policy?

If you’re leaving a job, Cobra might be the way to go initially. Another option is to look for a group rate through a freelancer’s union or trade/professional group you could join. Unfortunately, a lot of freelancers go without insurance, though that is dangerous and not preferable.

Q: What kind of capital do you need to strike out on your own?

A: Having an ample capital cushion is essential for surviving the lean-cash-flow months of a startup company, so start saving now. Calculate your expenses out to six months and save at least that much. It might take 30, 60 or 90 days just to start collecting on your invoices.

You always want to have some emergency money, as well. Unanticipated things happen in business and life all the time. An old Yiddish proverb says, Man plans; God laughs. Having a cash reserve is very important for any freelancer.

Q: How do freelancers save for retirement?

A: There are lots of options, including IRAs and Roth IRAs, which freelancers can use as tax-advantaged retirement funds. Initially, try to set aside $5,000 a year in your retirement account. As your income increases, try to make it 5 to 10 percent of your salary, which is similar to what you’d put in a 401(k) if you were still an employee.

As your business grows, talk to a financial advisor about how much you should be setting aside and what you should do with it.

For a self-employed person or small business owner, cash is king. Because most freelancers rely on monthly revenue to cover their expenses, they must have good cash flow in order to pay their bills, market their services and take on new work. New York CPA Jonathan Medows, of CPAForFreelancers, answers some of the typical questions he gets from freelancers.

Q: How should someone who is considering going freelance prepare financially?

Jonathan Medows: I always advise my clients to get a line of credit from their bank before they start freelancing as a career. Apply for that credit line while you still have a paycheck as an employee, because knowing you have a steady source of income makes the bank more likely to approve your loan application. Once you quit your job and start as a freelancer, in the first year you may go from having a large salary as an employee to taking only $10,000 or $20,000 as a startup salary. This steep income drop makes you less attractive as a loan prospect for a bank’s loan officer.

Another thing that sometimes happens is that your credit score drops when you start a business because you may incur a lot of credit card debt. That’s why I say secure a home equity line of credit or another kind of credit line beforehand. Many lenders are coming under pressure to lend to small businesses now and there are some very attractive rates available.

Q: What about alternative forms of financing for freelancers and other startups?

A: We are seeing options like “factoring” grow in the service industry. Factors, who originally started out in the apparel industry, will lend to you based upon the creditworthiness of the people who owe you money. They collect your invoices, take out their fee and give you the rest of what’s owed you.

So, for instance, say you have $80,000 in accounts receivable. They pay you a portion of that money up front, they collect on your invoices, take their cut and give you the remainder of the money. It’s an expensive way to borrow, but it can be effective for people who have strong vendors.

Another thing to think about is credit cards. Again, they’re expensive and you have to be sure that you don’t destroy your credit rating by overusing them, but they can be a funding source for startup freelancers.

Q: It’s very important for freelancers to stay on top of their collections. What do you recommend?

A: Establish credit terms and try to get as much money up front as you can. If your clients are not paying, call them and try to work with them. Be flexible and sometimes if you give a little bit, you’ll get a long-time paying customer who gives you lots of referrals. But if you’re dealing with someone who just won’t pay, you have to get aggressive with litigation. Freelancers can’t let people rip them off. If they get away with not paying you, they’ll do it to other people.

Use some prevention by knowing who you’re dealing with before you take on a freelance project. Do a credit check up front. In my experience, the people who walk in my office dressed very nicely and act cavalierly about money are the ones I typically have problems with.

Q: How do freelancers juggle cash flow with periodic expenses like quarterly tax payments?

A: If you don’t closely manage your cash flow, it may be a constant stretch to make your quarterly payments. And if you have a terrific revenue year, but you haven’t put aside sufficient cash to cover your taxes, you may be in for major tax liability come April 15, when you may not have sufficient cash on hand to pay it. If that happens, you can request an automatic six-month extension, so you can pay all or part of what you owe on Oct. 15, incurring only a small additional fee.

For these reasons, I advise clients to set money aside for tax payments in a separate savings account. I recommend saving 35 percent of your profits and then you’ll have no problem covering your taxes. And if it’s in a separate account, you won’t be tempted to use that money for something else. That may sound like a lot, but it’s because when you were an employee, your employer paid part of your tax obligation and the money was likely taken out before you got your paycheck, so it’s likely that you didn’t notice it.

Q: What tax deductions and expenses should freelancers claim?

A: A home office is only deductible if it is used regularly and exclusively for work, according to the IRS. In my experience, almost all freelancers qualify for a home-office deduction. Keep track of your business expenses and if you’re not sure whether you can claim them, start a list labeled, “Ask My Accountant.” What’s important is not to wait until tax time to ask questions.

Q: Many freelancers buy private health insurance policies. Are these tax-deductible?

A: Health insurance costs may reduce your self-employment or income taxes if your freelance business turns a profit. Subject to certain caveats, you may be able to deduct your health insurance premium as an “above-the-line” tax deduction on your Form 1040. If you have a loss, you can itemize the premiums on Schedule A of your personal tax return.

Q: Who should freelancers work with on their tax and financial issues?

A: Work with a licensed CPA who is very familiar with self-employment and small business issues. If you’re working with a bookkeeper or an unlicensed tax preparer, chances are they won’t be able to explain these complicated issues very well. Someone who is licensed has passed state exams and has a certain level of professional experience.

And of course, once you’ve hired a professional, take their advice. They can’t help you if you won’t listen to them and respect their expertise.

Many people start freelancing after they lose a job, quit a job or take early retirement. They know they have marketable skills and can make a living working for themselves, with a flexible schedule and autonomy to choose which projects to take on, and which to decline.

What many don’t realize immediately is that they will need to track their business’ financial information, watch cash flow and keep important records for their business in case they get audited by the IRS. This aspect of freelancing often comes as something of a rude shock. But self-employed record-keeping and accounting does not have to be difficult. If you want to succeed, follow these simple principles:

Banking: It’s very important to separate your business finances from your personal bank accounts. Open a business bank account and run your company through that account. Do not mix your personal cash with your business account unless you make a formal contribution, with paperwork to support it, to start your company. It’s easy to pay for your business expenses with a dedicated business credit card, on which you may be able to get a good rate and rewards points. If you use primarily one card for your company, you are likely to get a detailed expense report from that card company at the end of the year, which can help immensely as you prepare your tax returns.

Physical Record-Keeping: Although you have a very small likelihood of facing a tax audit, you should assume that you will be audited and keep records as if you will be. Self-employed individuals, particularly those who claim home-office deductions, do have a greater chance of being audited than employees do, particularly if their adjusted gross income is $100,000 or more.

Even if you have only a miniscule chance of drawing an IRS audit for your freelance business, you should organize and retain financial records such as invoices, checks, expense receipts, contracts with clients and bank statements for up to five years. Maintain an online or physical business calendar and archive it or keep it with your paper records in case you need to show when you met with clients or attended a conference. The IRS tends to particularly scrutinize expenses you claim for business meals, entertainment and travel, so be very diligent about collecting and saving those receipts. With many institutions issuing online records these days, it’s easier to organize your home office, but you will probably still have paper on file for some items. Organize your papers by sub-categories and tax year and keep them in a secure location that is easy to access in case you ever need them.

Accounting Software: The days of physical accounting books are long gone, giving way to myriad accounting programs that are available for your computer or online “in the cloud.” You can choose from a straightforward spreadsheet or a simple accounting program. The 2011 version of QuickBooks provides excellent insight to most freelancers about their revenue and expenses. Check your financial data on a daily basis, or at least weekly, and do comparisons between how your company is doing this year versus the same period last year. This way you will know whether your business is growing, staying static or foundering. Programs such as QuickBooks can also give you important information like which of your client invoices are overdue. This kind of data becomes extremely valuable when you need to step up your collections on accounts receivable.

In some cases, freelancers may need more detailed, industry-specific software, depending on their business and industry. No matter which software program you choose, enter your freelance income and expenses in the system frequently (or hire someone to do it for you), keep your numbers up-to-date and generate periodic accounting reports, such as cash flow and profit and loss statements.

If you don’t understand basic accounting or don’t want to handle it yourself, you can hire a bookkeeper and an accountant to help you evaluate how your freelance business is doing financially. Learn how to read the financial documents your CPA generates; if you’re unsure what the numbers mean, ask your accountant to sit down with you and explain the basics of items like profit-and-loss statements and accounts-receivable statements. A good accountant who specializes in freelancers should be happy to give you some time for a tutorial as long as you don’t ask during tax season. He or she can also help you determine how much to charge and how to build your overhead into your hourly rate or flat fee.

One major question facing many freelancers and self-employed individuals is whether they should form some kind of legal entity for their business activities. The answer: It depends.

This may seem frustrating, but the truth is that there is no one-size-fits-all solution that covers every situation. There are several types of legal business entities and there are advantages and disadvantages to each of them. There are also important tax implications associated with each.

You need to get specific advice, tailored to what you are doing as a freelancer, how you make and spend money and what your long-term goals are, before you make this decision.

Here’s some information about the various options and which generally works best for what kind of freelancer:

The simplest way to do business is not to form a legal entity at all. If you take this route, you will work under your own name in what is called a sole proprietorship. This is the default position for a business that opens its doors with nothing more than a license (if one is required) and a business bank account. In some instances, sole proprietors must file a DBA form (doing-business-as), which establishes the company name under which they will be conducting business.

You may also want to apply for a special federal tax number, called an EIN, for your sole proprietorship. The IRS website has an easy test to help you determine whether you need an EIN:,,id=97872,00.html" . Alternatively, as a freelancer, you can file taxes under your personal Social Security number, as you probably already do. And if you’re a home-based service provider, you probably don’t even need a DBA to get started.

Although it is easy and inexpensive, there are some drawbacks to operating as a sole proprietor. One is legal liability: As a sole proprietor, you are the business. If something your business does triggers a lawsuit and a settlement is entered against your company in court, you will be personally liable for paying the damages. Any assets you own, including your home and bank accounts, could be seized to satisfy such a judgment. If you form a corporation or an LLC, which we’ll talk about shortly, you may be able to shield yourself and your family from this kind of liability.

A partnership is a legal entity you’ll form if you’re going into business with someone else. Just like in a sole proprietorship, the major drawback here is that a partnership does not offer limited liability protection to its owners.

If you choose to form a partnership, it is important to consult an accountant and an attorney about how you and your partners will own and operate the business. Not having a formal, legal agreement with a partner is a classic mistake made by many entrepreneurs who go into business with friends or relatives “on a handshake.” Although things may seem amenable at first, businesses are complicated and the decisions associated with them are often very difficult. Not having a legal agreement in place is often fatal to a partnership’s success.

If you are concerned about being personally liable in case someone sues your company, you have two business entity choices: an LLC or an S-Corp. Neither provides iron-clad protection from legal liability in a lawsuit, but if these entities are set up correctly, they can effectively shield your personal assets from a court judgment. Of course, only you know whether your business activities are likely to become the target of a lawsuit. Certain businesses and industries are much more likely to be sued than others. Talk to an accountant if you’re not sure where you company stands in terms of lawsuit risk.

A limited liability company is an alternative to incorporating your business. In some states, it is easier and cheaper to form an LLC than it is to form a corporation. In others, this is not true. New York State offers information about LLCs at its website: . It strongly recommends that you consult with an accountant before you decide whether to choose an LLC.

That’s because there are complex decisions about how to have your LLC taxed that most freelancers without tax and finance experience are unfamiliar with. In addition to federal taxes, there are state and local tax issues (particularly if you will be operating your freelance business in New York City) that should be factored in when you decide whether to form an entity. There are definite advantages to incorporating or forming an LLC, with a shield from liability chief among them, but annual expenses and paperwork are also involved that may make the process too cumbersome and expensive for most freelancers.

Oftentimes, entrepreneurs form LLCs very early on in their business process and the company does not work out or they get another job and move on. Unfortunately, they are out of the money they spent on forming the entity - and they must spend more to properly close it.

Another common entity for self-employed people and freelancers is an S-corporation. The S-corp is one form of corporate entity; there are others, but we won’t concern ourselves with them here because they do not apply to freelancers. If you’re interested in setting up an S-Corp, you first must form a corporation and then get permission from the IRS and your state to “elect” S-Corp status.

An S-corporation is taxed similar to a partnership or an LLC, in that it is what we call a “pass-through” entity. That means that any business income you get from freelancing passes through the corporation and is declared on your personal income tax return. You must still file a corporate tax return each March, however.

Incorporating does offer tax advantages to some self-employed people. Owners of S-Corps are required to pay themselves a salary. They are also allowed them to take advantage of employee and retirement benefits that they would not have as sole proprietors. Health expenses can also be purchased through certain kinds of corporations established by freelancers.

On the downside, S-Corps must buy insurance coverage, such as worker’s comp and disability. They must register for unemployment insurance and pay the appropriate tax.

Can you set up a corporation of LLC yourself online? Technically, yes. There are many software companies and online legal outfits that advertise low prices on online entity formation. However, as you can see from this short discussion, the choice of entity is complicated and difficult to remedy if you make the wrong decision. Unless you have done thorough research and you are positive that you have made the right choice of entity, you may end up making a costly mistake and spending far more to unwind it than you would have had you gotten professional help to start. We are experts in entity formation and can take a look at your specific situation and help you determine whether you need a legal entity and if so, which will give your freelance business the best chance of success.

Hiring Freelance Help Of Your Own
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As a successful freelancer, your client list will eventually grow to the point where you’ll have more work than you can handle.

When that happy day rolls around, you’ll need to make a decision: Do you refer extra work to a colleague (who may do the same for you someday) or do you hire another freelancer to help you out?

Just as you work on projects that companies can’t – or won’t - do in-house, you can outsource some tasks in your business to a freelancer. That may mean you bring on a virtual assistant or hire a home-based marketer. Or it may mean that you need help with your core business and assign out some projects to a professional who specializes in work that is similar or related to your own.

Until you get to the point where you are ready to hire full-time employees – a big leap for a self-employed individual – hiring independent contractors is usually your best bet. Along with skipping administrative hassles, payment of benefits and the time-consuming hiring process, you’ll save at least 10 percent on payroll taxes and workers' compensation if you use freelance workers to supplement your business output.

But you’ll have to be careful about separating out freelancers (the IRS calls them “independent contractors”) from employees, because our tax system treats the two very differently. And even if you didn’t intend to hire someone onto your payroll, if you treat a contractor as an employee, the IRS may catch on to that and second-guess you in the form of a federal labor audit or New York State labor audit.

The IRS uses a checklist, The Determination of Worker Status (form SS-8), that you can download here: . The checklist helps you evaluate whether an individual is an “independent contractor” or an employee for tax purposes. Generally speaking, if you outsource work to an freelancer who has multiple clients and controls her own work schedule, that person will be considered an independent contractor. If you’re outsourcing to someone who works exclusively for you, under your specific training and direction and on a work schedule you establish, the IRS will probably consider that person your employee for tax purposes.

What’s the difference? Quite a lot. If you’re working with a freelancer, you don’t have to withhold payroll taxes or issue a W2 form to that person. You simply pay their invoices and issue them a 1099 tax form at the end of the year. If the IRS determines that, for all intents and purposes, you’ve got an employee, you’ll need to withhold payroll taxes and issue a W2 form. And if the IRS finds that you’ve been an employer for some time but haven’t been following the tax rules, you could be hit with interest on back taxes, and maybe even penalties.

The IRS looks at the relationship between the freelancer and the organization to help determine who works as an independent contractor. Just having a written contract that refers to an individual as a freelancer does not mean he is truly a freelancer. If you’re paying him for sick time or giving paid vacations, he’s going to be judged to be an employee. But even if you’re not paying benefits, you still may have an employee as defined by the IRS if: an individual is essential to operating your business and you exert control over that person’s work for an open-ended period of time.

This IRS article goes into the details of determining who is an independent contractor and who is an employee:,,id=99921,00.html

With many states and the federal government hurting for revenue, audits are increasing, even on self-employed persons and small businesses. If an audit determines that you've misclassified an employee as a contractor, you could be hit with back taxes and worse. CPAForFreelancers can guide you in ensuring that any freelancers to whom you are outsourcing work match the IRS guidelines. This is part of the service we provide as an accounting firm focused specifically on New York state freelancers and self-employed individuals.

Don’t risk it: Make sure you know the rules and are following them from the start as a responsible freelancer.

Let’s say a stranger comes up to you and asks you to loan him $1,000. You start asking some questions, and find out that the stranger hasn’t accomplished much in life. He has had some trouble paying all his bills on time. He’s even defaulted on prior loans. But he’s sorry about all that and he’s promised to turn over a new leaf – if only you’ll just trust him this one time!

How would you feel about granting this stranger’s request? Queasy is probably the right word to describe the response to such a request.

That’s also how someone will feel about lending you money to start your freelance business, especially if you’re just starting out and don’t have an extensive track record, if your personal credit score is poor. And that’s also how an investor will feel – even if it’s a friend or family member – about putting money into your self-employment venture.

In today’s economic climate, a freelancer’s personal credit score has become an important proxy for her trustworthiness, her level of responsibility and her value as a solid investment. It doesn’t seem fair, because oftentimes it’s not irresponsibility but tough circumstances – costly medical problems, say, or a divorce – that can wreck a person’s credit. Still, a FICO score under 700 can mean that your dream of self-employment just won’t come true - unless you can bootstrap your venture, meaning that you’ll have to come up with all the upfront cash yourself.

What if you don’t even know what your credit score is? Many Americans do not. You can request a free copy of your credit report from FICO, the Fair Isaac Corporation, at . Check your score and make sure that it accurately reflects your credit history. Sometimes an error can lower your score without you even knowing about it.

If your score is low, you can do some work now to improve it. Start by developing a positive credit history, borrowing small amounts and paying them back on schedule. Make sure that you don’t pay any bills later than their due dates or incur any penalties. Pay down as much high-interest debt as you can, to lower your level of outstanding debt.

After you have established that you can pay your bills on time, you will find lenders and vendors searching you out and offering you favorable terms because your track record will be good. It can help to register your business with Dun & Bradstreet,, a service that many companies use to check the credit ratings of self-employed individuals and small businesses.

Having a good credit history can be a lifesaver when you are growing your freelance business and taking on larger projects. You may need credit in order to accept a big assignment. And if your personal credit score is stellar, you can request that your loan application be expedited. Knowing that you have access to cash when you need it – either from lenders or investors – frees you up to bid on larger, more lucrative jobs than you could handle without a line of credit or infusion of outside capital.

If you need help repairing a lousy credit score, CPAForFreelancers has an affiliate company does credit repair at . Make sure that you get good references on anyone you hire to help. Many so-called credit repair agencies are not legitimate and some charge you for basic information that is available online for free. Look for a consultant who will work with you personally, such as, and choose a licensed CPA or nonprofit organization over a for-profit outfit that advertises on late-night TV.

Once you strike out on your own as a freelancer, you will need to be more aware of taxes than you likely were as an employee. While you were on someone else’s payroll, they automatically deducted taxes from your paycheck. You were only obligated to think about paying taxes around April 15.

As a self-employed person, you are now responsible for paying all your taxes yourself. That includes: Federal, state (if applicable) and city/local income taxes; self-employment tax and city business taxes. For example, self-employed people whose profit exceeds a certain threshold are taxed in New York City.

Although you don’t have to be obsessed with taxes as a freelancer, you do need to know a few basics.

The IRS treats self-employment differently from regular employment. As a result, self-employed people often pay more in taxes as a percentage of their income. The main difference is that employees split the cost of Social Security and Medicare taxes with their employers. As a freelancer, you’ll have to pay both the employee and the employer portion of Social Security and Medicare, for a total of 15 percent of your income. (This is before income taxes, remember.) And that’s not all: About three-quarters of self-employed Americans work in cities that tax unincorporated businesses at around 4 percent of profits.

The good news is that, as a freelancer, there are many tax deductions you can take and expenses you can write off. For instance, 50 percent of the self-employment tax you pay is deductible. And you can write off business expenses for things like office supplies, computer hosting for your website, conferences you attend for work and business lunches. Be diligent about compiling receipts for any expenses you plan to list on your tax returns. Capital expenses, like buying a new computer or desk, used to have to be depreciated over time. But currently there’s a small business tax break under IRS Section 179 that allows you to immediately deduct up to $250,000 worth of equipment you purchase for your business.

The IRS has a self-employed tax center where it covers many of the details you’ll need to know about taxes as a freelancer:

If you have someone working directly for you as an employee, you’ll have to pay the employer’s share of Social Security and Medicare for them as well as withhold taxes from your employee’s paycheck. (See our discussion LINK about employees versus independent contractors for more information.)

You won’t owe federal self-employment tax until your business becomes profitable. But since many freelancers, particularly home-based, have low overhead and few startup costs, your venture into freelancing may become profitable almost immediately. Typically, self-employment tax must be paid on a quarterly basis, with deadlines on April 15, June 15, Sept. 15 and Jan. 15. The amount of quarterly tax you owe for the upcoming tax year should be calculated when you file your income tax returns for the previous tax year. Because the calculation will be based on income projections from the previous year, these quarterly payments are called “estimated taxes.”

As a freelancer, you’re likely to find that your income varies quite a bit from year to year, as you pick up new clients and expand your services, or you lose clients and wind down contracts. Don’t worry about that: As long as your calculations are made according to an IRS formula, you won’t face any large penalties even if you and your accountant discover that you’ve had a better year than you anticipated and as a result, you’ve underpaid your quarterly estimates.

We discuss business entity formation for freelancers here but no matter which entity you form for your small business, as a self-employed person you must file a tax form with your annual state and federal income tax returns called the Schedule C. This form calculates your business' profit or loss and the bottom line on this form is transferred to your overall tax returns. If your business shows a profit, it will be counted as taxable income whether or not you have paid that money to yourself as a salary or reinvested it in your company. If your freelance activities wind up showing a loss, you may be able to use that loss to offset other income on your current return and even to offset income in previous or future years.

Today’s freelance workforce faces a confusing and difficult tax landscape. Typically, they cannot get many benefits accorded to employees, such as unemployment insurance or worker’s compensation, and they pay more in taxes. It is important for freelancers, self-employed individuals and small business owners to get proper tax advice from an accountant who is familiar with their issues. Trying to file tax returns yourself is likely to cost you more money in the long run, as you miss out on available deductions or make costly mistakes that you must pay for later.

By Jonathan Medows

‘Tis the season. Yes - for shopping, egg nog and over-indulgence at the buffet table. But for freelancers, it’s also the season to take stock of your income and expenses for 2013, get your financial house in order and determine what you will owe in taxes come next April.

The big new issue for self-employed individuals this year is the premium tax credit that will be available to low- and moderate-income individuals who buy health insurance on the Obamacare marketplaces, whether they are run by your state or at the federal level. With and certain state-run exchanges experiencing many early technical glitches, relatively few individuals have been able to calculate their tax credits or sign up for coverage this fall.

However, the system is designed to subsidize the cost of health insurance for those who are not covered by an employer. That subsidy can either be taken as a credit on your tax liability in the following calendar year (i.e., 2015 for 2014 insurance expenses) or as an upfront payment to your insurance company that will reduce the cost of your monthly premiums. Again, this credit is only available for insurance purchased on the Obamacare exchanges, but it is available to a wide range of Americans, including individuals making up to about $45,000 annually and four-person households bringing in about $94,000.

If you fall into that income range and buy private insurance, it will probably be worth your while to explore your Obamacare marketplace to determine what your options for coverage are in 2014. Individuals who are not covered by a health plan next year will have to pay a penalty of $95, unless that penalty is lifted due to the ongoing website technical problems. The IRS explains the tax credit and how it works in more detail at its website, .

Another tax change that freelancers should be aware of also comes down courtesy of the Affordable Care Act. It’s an increase in the threshold for the unreimbursed medical expense deduction. If you list medical expenses, including insurance premiums, as itemized deductions on your income tax Schedule A, you can continue to do that for 2013. But they must exceed 10 percent of your adjusted gross income in order to become a tax deduction, unless you are 65 or older. In past years, they only had to reach 7.5 percent of your AGI to qualify as a deduction. If you have pending medical bills and can pay them off in December, you may become eligible for that deduction. If your business income shows a profit and you’re not eligible for employer-provided insurance through a job or a spouse’s job, you can deduct your out-of-pocket cost for insurance premiums on line 29 of your 1040 form.

Also in 2013, the self-employment tax rate went from 13.3 percent to 15.3 percent, thanks to the expiration of a tax holiday passed as part of the effort to stimulate the economy during the recent recession. Freelancers who make quarterly tax payments should already be paying the higher amount; those who expect to owe money in April 2014 should take the rate increase into account now and save accordingly. By the way, if you have been making quarterly estimated payments on your self-employment income, this is the time to calculate whether you have overpaid or underpaid for 2013. If you’ve overpaid, you can probably reduce your final quarterly that is due in January 2014. If you’ve underpaid, you may want to increase your January 2014 payment so you won’t get hit with tax liability come April 15.

This is also a good time to take stock of whether you are likely to fall into the same tax bracket this year as you were in during 2012. The tax rates for lower- and middle-class Americans have been made permanent at the level they were in 2012, although the two top tax rates went up after last year’s budget standoff in Congress. If you can, make a determination about 2014 and whether you are likely to have less income next year, or additional income that could bump you into a higher tax bracket. Defer income scheduled to come in late this year if you expect to fall into a lower tax bracket next year and accelerate any planned deductions, such as purchasing a new computer or mobile device. If, on the other hand, you are likely to work more or raise your prices next year and you may be pushed into a higher tax bracket, ask clients who owe you money to pay up before the end of the year. That way you will pay taxes on that income at the lower 2013 rate.

Another way to reduce your income for 2013 is to contribute to your IRA or other retirement account. For 2013, the maximum you can contribute to all of your traditional and Roth IRAs is $5,500 if you are 49 and younger; $6,500 if you’re age 50 or older. If you’re not sure about making a retirement contribution yet, you have until this coming April to make an IRA contribution for tax year 2013.

Jonathan Medows is a New York City based CPA who specializes in taxes and business issues for freelancers across the country. He has a resource section with how-to articles specifically for the self-employed at his website, .