January 19, 2022

What you should know about taxes as a freelance

If you are self-employed and have doubts about paying taxes, today we are going to tell you everything you need to know about this issue. A natural person who works for fees is known as a freelance and cannot avoid paying taxes.

If you are self-employed and have doubts about paying taxes, today we are going to tell you everything you need to know about this issue. A natural person who works for fees is known as a freelance and cannot avoid paying taxes to the SAT (Tax Administration Service).

Freelancers are required to file an annual return for their fiscal years, which is usually before May 31 of each year.

And what are the taxes that a freelance must pay?

Woman reviewing papers with calculator as an example of freelance taxes

The taxes that as freelance will be required are:

  • ISR (Income Tax). This tax is determined based on the total amount of your income, in this case, the amount you will have to pay is variable.
  • VAT (Value Added Tax). This is a tax with a fixed rate of 16%, which you can charge in the issuance of your invoices when providing your services.

Now, as a freelance, you must know under what tax regime you must register, which will depend on the profession to which you dedicate yourself.

A professional freelance who provides his services for fees, can choose between the modality of natural person with business activity or create a company and invoice through it.

When your professional activities do not require a professional card, the tax regime that suits you is the Tax Incorporation Regime, the most advisable as a freelance worker since you have the possibility of receiving greater support and facilities from the government.

What are the advantages of this tax regime?

Calculator with papers and coins as an example of freelance taxes.

By registering under this regime as a freelance, the advantages you can get are:

  • During the first year of having registered, you will not pay the ISR and the second year you will only pay 10%, being so on until you turn years as a taxpayer.
  • If the income you receive does not exceed $ 300,000 you can avoid paying VAT and you will not pay the IEPS (Special Tax on Production and Services).
  • Now, if the income received exceeds this amount, the percentages depend on your activity or business turn.
  • In some cases, the government can support you grow your business.

Annual and monthly declaration

Woman writing on papers as an example of taxes freelance.
  • Each freelance taxpayer must make a monthly declaration of their taxes being the 17th of each month the last day to make it.
  • When receiving payments through fees, you are required to make monthly and annual returns (as we mentioned above).
  • When you do not declare in the established period of time, the SAT can impose fines in addition to a tax credit that has the equivalent of the amount you have stopped paying in addition to the updates for surcharges ranging from 30 to 40% of the unpaid amount.
  • You must be very cautious when making your statements. If the SAT detects that you had more expenses than income, they will make a refund, which to give an example, must be less than or equal to $ 150,000.00. This return must be made within 15 business days.

As a freelance, should you issue electronic invoices?

Yes. Being a freelance taxpayer, it is essential that you issue electronic invoices or digital tax receipts (CFDI). To do this you must have an electronic signature, a digital seal, and an updated tax address.

These invoices serve so that the SAT has the knowledge of your economic activities as a taxpayer, but here the matter does not end. You should also report whether the payments were in a single display or in parts. Thus, the government will know when you receive your money and in this way will determine the taxes you will have to pay. If you don't, you can earn fines.

In the event that you issue 1 or 2 invoices per month, the SAT has a free application that you can use.

As a freelance, can taxes be deducted?

Woman holding dollar bills.

As a freelance, if you can deduct taxes. The expenses are considered indispensable to be able to carry out your activities. The deductions apply both to the ISR and in the case of VAT, you can credit those that are deductible from the ISR.

In the tax deduction, you can also include travel expenses such as meals, with the condition that the meals do not exceed $ 750 per day within the Mexican Republic, in case of trips abroad, you must not exceed $ 1500.

Some personal expenses may be deducted such as medical service.

The tax deduction as a freelance can be a bit confusing at first, the idea is to have the help of a professional accountant you trust to help you in the process of paying taxes and your returns.

How has this tax obligation been for you as a freelancer? Let us know in the comments.

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