If you've left your traditional job to become a freelance consultant, you probably have tons of tax questions. Here are the ones I hear most often:

• What records do I need to keep for taxes?

• What expenses are tax-deductible?

• How and when do I pay my taxes?

(You can find additional information for new businesses here.)

Records You Need to Keep

The best way to pay the lowest possible tax is surprisingly low-tech: keep track of all your business expenses! If you avoid paying with cash and use one checking account and one credit card for all your business activity, it'll be much easier to capture all your tax deductions.

You need to hang onto your bank and credit card statements, plus other business records for at least 5 years. Here's more information about document retention.

You also need to track the business-related miles you drive. In 2025, the standard tax deduction is 70 cents per mile, which can really add up to a big tax deduction. You might be able to claim even more based on your actual car expenses.

You can keep your mileage records however works for you - on your phone, on your computer, in a little calendar book in the car. The key is to stay on top of it throughout the year. The IRS says your car mileage records must be kept "contemporaneously," but they don't actually define what that means.

Tax-Deductible Expenses

There's no official list of tax deductions, just guidelines. The test is simple: Is the expense "ordinary" and is it "necessary"?

"Ordinary" means other people who do what you do also have this expense. "Necessary" means this expense is important for running your business successfully. If your expense is both ordinary and necessary, it's a tax deduction.

I tell my clients to bring me all their expenses so we can talk through any questionable items. Here's a list of common business expenses (called a chart of accounts).

How Do I Pay My Taxes?

When you had a regular job, taxes were simple - they came out of your paycheck before you ever saw the money. Plus, you split the cost of Social Security and Medicare with your employer; they paid half and you paid half.

Now that you're self-employed, you pay 100% of the Social Security contribution, which is called "self-employment tax." For many people just starting their consulting careers, the self-employment tax is way more than their income tax and comes as a real shock. It works out to about 14% of your net profit! This is exactly why it's so important to capture every single business deduction you can.

The income tax and self-employment tax are paid together. Here's more information on calculating and paying your quarterly estimated tax payments.