Capital gains taxes are the taxes you pay on any profits you make from selling investments, like stocks, bonds, properties, cars, or businesses. The tax isn’t applied for owning these assets — it only hits when you profit from selling them.
It’s important for beginner investors to understand that a number of factors can affect their capital gains tax rate: how long they hold onto an investment, which asset they’re selling, the amount of their annual income, as well as their marital status.
Read on to learn how capital gains work, the capital gains tax rates, and tips for lowering capital gains taxes.
Capital Gains Tax Rates Today
Whether you hold onto an investment for at least a year can make a big difference in how much you pay in taxes.
When you profit from an asset after owning it for a year or less, it’s considered a short-term capital gain. If you profit from it after owning it for at least a year, it’s a long-term capital gain.
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Short-Term Capital Gains Tax Rates (for Tax Year 2023)
The short-term capital gains tax is taxed as regular income or at the “marginal rate,” so the rates are based on what tax bracket you’re in.
The Internal Revenue Service (IRS) changes these numbers every year to adjust for inflation. You may learn your tax bracket by going to the IRS website, or asking your accountant.
Here’s a table that breaks down the short-term capital gains tax rates for the 2023 tax year, or for tax returns that are filed in 2024.
Marginal Rate
Income — Single
Married, filing jointly
10%
Up to $11,000
Up to $22,000
12%
$11,000 to $44,725
$22,000 to $89,450
22%
$44,725 to $95,375
$89,450 to $190,750
24%
$95,375 to $182,100
$190,750 to $364,200
32%
$182,100 to $231,250
$364,200 to $462,500
35%
$231,250 to $578,125
$462,500 to $693,750
37%
$578,125 or more
More than $693,750
Long-Term Capital Gains Tax Rate By Income for Tax Year 2023 (or Tax Season 2024)
Long-term capital gains taxes for an individual are simpler and lower than for married couples. These rates fall into three brackets: 0%, 15%, and 20%.
The following table breaks down the long-term capital-gains tax rates for the 2023 tax year by income and status.
Capital Gains Tax Rate
Income — Single
Married, Filing Separately
Head of Household
Married, Filing Jointly
0%
Up to $44,625
Up to $44,625
Up to $59,750
Up to $89,250
15%
$44,626 to $492,300
$44,626 to $276,900
$59,751 to $523,050
$89,251 to $553,850
20%
$492,301 or more
$276,901 or more
$523,051 or more
$553,851 or more
A higher 28% is applied to long-term capital gains from transactions involving art, antiques, stamps, wine, and precious metals.
Additionally, individuals with modified adjusted gross incomes (MAGIs) over $200,000 and couples filing jointly with MAGIs over $250,000 — who have net investment income, may have to pay the Net Investment Income Tax (NIIT), which is 3.8% on the lesser of the net investment income or the excess over the MAGI limits.
Tips For Lowering Capital Gains Taxes
Hanging onto an investment for more than a year can lower your capital gains taxes significantly.
Capital gains taxes also don’t apply to so-called “tax-advantaged accounts” like 401(k) plans, IRAs, or 529 college savings accounts. So selling investments within these accounts won’t generate capital gains taxes. Instead, traditional 401(k)s and IRAs are taxed when you take distributions, while qualified distributions for Roth IRAs and 529 plans are tax-free.
Single homeowners also get a break on the first $250,000 they make from the sale of their primary residence, which they need to have lived in for at least two of the past five years. The limit is $500,000 for a married couple filing jointly.
For new investors, it might be helpful to know that you may deduct as much as $3,000 in losses from an investment to help offset the amount of taxes on your income.
How US Capital Gains Taxes Compare
Generally, capital gains tax rates affect the wealthiest taxpayers, who typically make a bigger chunk of their income from profitable investments.
Here’s a closer look at how capital gains taxes compare with other taxes, including those in other countries.
Compared to Other Taxes
The maximum long-term capital gains taxes rate of 20% is lower than the highest marginal rate of 37%.
Proponents of the lower long-term capital gains tax rate say the discrepancy exists to encourage investments. It may also prompt investors to sell their profitable investments more frequently, rather than hanging on to them.
Comparison to Capital Gains Taxes In Other Countries
In 2023, the Tax Foundation listed the capital gains taxes of the 27 different European Organization for Economic Cooperation and Development (OECD) countries. The U.S.’ maximum rate of 20% is roughly midway on the spectrum of comparable capital gains taxes.
In comparison, Denmark had the highest top capital gains tax at a rate of 42%. Norway was second-highest at 37.84%. Finland and France were third on the list, both at 34%. In addition, the following European countries all levied higher capital gains taxes than the U.S. (listed in order from highest to lowest): Ireland, the Netherlands, Sweden, Portugal, Austria, Germany, Italy, Spain, and Iceland.
Compared With Historical Capital Gains Tax Rates
Because short-term capital gains tax rates are the same as those for wages and salaries, they adjust when ordinary income tax rates change. For instance, in 2018, tax rates went down because of the Trump Administration’s tax cuts. Therefore, so did short-term capital gains rates.
As for long-term capital gains tax, Americans today are paying rates that are relatively low historically. Today’s maximum long-term capital gains tax rate of 20% started in 2013.
For comparison, the high point for long-term capital gains tax was in the 1970s, when the maximum rate was at 35%.
Going back in time, in the 1920s the maximum rate was around 12%. From the early 1940s to the late 1960s, the rate was around 25%. Maximum rates were also pretty high, at around 28%, in the late 1980s and 1990s. Then, between 2004 and 2012, they dropped to 15%.
💡 Quick Tip: Did you know that investment losses aren’t necessarily bad news? Some losses can be used to offset gains, potentially reducing how much tax you owe. Learn more about investment taxes.
Tax Loss Harvesting
Tax loss harvesting is the strategy of selling some investments at a loss to offset the taxable profits from another investment.
Using short-term losses to offset short-term gains is a way to take advantage of tax loss harvesting — because, as discussed above, short-term gains are taxed at higher rates. IRS rules also dictate that short-term or long-term losses must be used to offset gains of the same type, unless the losses exceed the gains from the same type.
Investors can also apply losses from investments of as much as $3,000 to offset income. And because tax losses don’t expire, if only a portion of losses was used to offset income in one year, the investor can “save” those losses to offset taxes in another year.
Capital gains taxes are the levies you pay from making money on investments. The IRS updates the tax rates every year to adjust for inflation.
It’s important for investors to know that capital gains tax rates can differ significantly based on whether they’ve held an investment for at least a year. An investor’s income level also determines how much they pay in capital gains taxes.
An accountant or financial advisor can suggest ways to lower your capital gains taxes as well as help you set financial goals.
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A fair credit score falls in the mid-lower range of the credit-scoring spectrum. With the FICO® scoring model, which ranges from 300 to 850, a fair score is 580 to 669.
Fair credit is better than poor credit but below the average credit score. While you’ll likely be able to get a credit card or loan with fair credit, you probably won’t qualify for the most favorable rates and terms.
Read on to learn how fair credit compares with other credit score ranges, the difference having good credit can make, and what you can do to build your credit.
What Is Fair Credit?
What “fair credit” means will depend on the scoring model. With FICO, the most widely used credit scores by lenders in the U.S., fair credit is a score between 580 and 669. With VantageScore®, another popular scoring model, fair credit is a score of 601 to 660.
The fair credit range is above poor credit but below good credit, and is considered to be in the subprime score range.
Credit scores are calculated using information found in your credit reports (you have three, one from each of the major consumer credit bureaus). People typically have multiple, not just one, credit score, and these scores can vary depending on the scoring model and which of your three credit reports the scoring system analyzes. While each score may be slightly different, they typically fall into similar ranges and scoring categories, such as poor, fair, good, and excellent/exceptional.
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Is Fair Credit Good or Bad?
As the name “fair” implies, this score is okay, but not great. A fair credit score isn’t the lowest category on the FICO chart — that’s the poor credit category, which runs from 300-579. But it’s definitely not the highest either. Above fair credit, there is good credit (670-739), very good credit (740-799), and exceptional credit (800-850).
With a fair credit score, lenders will likely see you as an above-average risk and, as a result, charge you more upfront fees and higher interest rates. They may also approve you for a lower loan amount or credit limit.
With fair credit, you might also have difficulty getting approved for certain financial products. For example, you might need a higher credit score to get the best rewards cards or certain types of mortgages. Landlords and property managers may also have credit score requirements. You might have to pay a larger security deposit if you have a fair credit score.
Is a 620 Credit Score Fair?
Yes, 620 is within the 580-669 range for a fair FICO score and, thus, would be considered a fair credit score. A 620 is also in the VantageScore range for fair (580 to 669).
A credit score is a three-digit number designed to represent someone’s credit risk (the likelihood you’ll pay your bills on time). Lenders use your credit scores — along with the information in your credit reports — to help determine whether to approve you for a loan or credit line and, if so, at what rates and terms. Many landlords, utility companies, insurance companies, cell phone providers, and employers also look at credit scores.
Knowing your credit scores can help you understand your current credit position. It also provides a baseline from which you can implement change. With time and effort, you may be able to build your credit and gradually move your credit score into a higher category, possibly all the way up to exceptional.
It’s a good idea to periodically review your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) to make sure all of the information is accurate, since errors can bring down your scores. You can get free weekly copies of your reports at AnnualCreditReport.com .
However, your credit reports will not contain your credit scores.
Fortunately, there are easy ways to get your credit scores, often for free. Many credit card companies, banks, and loan companies have started providing credit scores for their customers. It may be on your statement, or you can access it online by logging into your account.
You can also purchase credit scores directly from one of the three major credit bureaus or other provider, such as FICO. Some credit score services and credit scoring sites provide a free credit score to users. Others may provide credit scores to credit monitoring customers paying a monthly subscription fee.
Your credit scores are based on information in your credit reports, and different things can help or hurt your scores. FICO scores are based on the following five factors.
1. Payment History
This looks at whether you’ve made your debt payments on time every month and is the most important factor in computing your FICO credit score. Even one payment made 30 days late can significantly harm your score. An account sent to collections, a foreclosure, or a bankruptcy can have even more significant and lasting consequences.
2. Amounts Owed
This notes the total amount you’ve borrowed, including how much of your available credit you’re currently using (called your credit utilization rate). If you’re tapping a sizable percentage of your available credit on your credit cards (such as 30% or more), for example, that can have a negative impact on your score.
3. Length of Credit History
Experience with credit accounts generally makes people better at managing debt (research bears this out). As a result, lenders generally see borrowers with a longer credit history (i.e., older accounts) more favorably than those that are new to credit. All things being equal, the longer your credit history, the higher your credit score is likely to be.
4. Credit Mix
This looks at how many different types of debt you are managing, such as revolving debt (e.g., credit cards and credit lines) and installment debt (such as personal loans, auto loans, and mortgages). The ability to successfully manage multiple debts and different credit types tends to benefit your credit scores.
5. New Credit
Research shows that taking on new debt increases a person’s risk of falling behind on their old debts. As a result, credit scoring systems can lower your score a small amount after a hard credit inquiry (which occurs when you apply for a new loan or credit card). The decrease is small, typically less than five points per inquiry, and temporary — it generally only lasts a few months.
Steps That Can Help Improve Fair Credit
While you may still be able to qualify for loans with fair credit, building your credit can help you get better rates and terms. Here are some moves that may help.
• Pay your bills on time. Having a long track record of on-time payments on your credit card and loan balances can help build a positive payment history. Do your best to never miss a payment, since this can result in a negative mark on your credit reports.
• Pay down credit card balances. If you’re carrying a large balance on one or more credit cards, it can be helpful to pay down that balance. This will lower your credit utilization rate.
• Consider a secured credit card. If you’re new to credit or have a fair or low credit score, you may be able to build your credit by opening a secured credit card. These cards require you to pay a security deposit up front, which makes them easier to qualify for. Using a secured card responsibly can add positive payment information into your credit reports.
• Monitor your credit. It’s a good idea to closely examine the information in your three credit reports to make sure it’s all accurate. Any errors can drag down your score. If you see any inaccuracies, you’ll want to reach out to the lender reporting the information. You can also dispute errors on your credit report with the credit bureaus.
• Limit hard credit inquiries. Opening too many new credit accounts within a short period of time could hurt your scores because credit scoring formulas take recent credit inquiries into account. When shopping rates, be sure that a lender will only run a soft credit check (which won’t impact your scores).
Reasons to Improve Your Credit Score
Building your credit takes time and diligence, but can be well worth the effort, since our scores impact so many different parts of our lives.
Loans
Credit scores are used by lenders to gauge each consumer’s creditworthiness and determine whether to approve their applications for loans. A higher score makes you more likely to qualify for mortgages, auto loans, and different types of personal loans. It also helps you qualify for more favorable lending rates and terms.
Credit Cards
Credit card issuers typically reserve cards with lower annual percentage rates (APRs), more enticing rewards, and higher credit limits for applicants who have higher credit scores. A fair credit score may qualify you for a credit card with a high APR and little or no perks. Improving your credit score could potentially give you the boost you need to qualify for a better credit card.
Security Deposits
Just found your dream apartment? A fair credit score could mean a higher security deposit than if you had a good or better credit score. With a poor or fair credit score, you may also be asked to pay security deposits for cell phones or basic utilities like electricity.
Housing Options
A fair or poor credit score can even limit which housing options are available to you in the first place. Some landlords and property management companies require renters to clear a minimum credit bar to qualify.
It’s possible to get a personal loan with fair credit (or a FICO score between 580 and 669) but your choices will likely be limited.
Personal loan lenders use credit scores to gauge the risk of default, and a fair credit score often indicates you’ve had some issues with credit in the past. In many cases, borrowers with fair credit may be offered personal loans with higher rates, steeper fees, shorter repayment periods, and lower loan limits than those offered to borrowers with good to exceptional credit.
Although some lenders offer fair credit loans, you’ll likely need to do some searching to find a lender that will give you competitive rates and terms.
💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.
The Takeaway
Having a fair credit score is better than having a poor credit score and doesn’t necessarily mean you won’t qualify for any type of credit. However, the rates and terms you’ll be offered may not be as favorable as those someone with good or better scores can get. With time and effort, however, you can move up the credit scoring ladder. If you work on building your credit score until you have good or better credit, you’ll gain access to credit cards and loans with lower interest rates and more perks.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
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FAQ
Is fair credit good or bad?
A fair credit score is neither good nor bad, it’s just okay. FICO credit scores range from 300 to 850 and a fair score is 580 to 669. It’s better than a poor credit score but below the average credit score.
What’s considered a fair credit score?
According to the FICO scoring model, which ranges from 300 to 850, a fair credit score is one that falls between 580 and 669. It’s one step up from a poor credit rating but below good, very good, and exceptional.
Is a 620 credit score fair?
Yes, a 620 credit score is considered to be in the fair range. According to the FICO scoring model, which ranges from 300 to 850, a fair credit score is one that falls between 580 and 669.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Are you a freelancer? If so, you are in good company. Last year, almost 40% of the U.S. population did freelance work.
As the gig economy surges and more people participate, it’s important to be aware of the taxes you owe and the deductions you can take. Those deductions can help lower the amount of taxes you owe and help you keep more of your hard-earned money, so you’ll want to claim what’s due to you.
Taxes for those who are self-employed can get complex, and tax laws can change frequently. It’s therefore wise to do your research or hire a tax professional who focuses on freelance taxes.
But whether you choose to work with a tax pro, or go it on your own, it can be very helpful to know about the self-employed tax deductions that are usually allowed. To help you get up to speed, read on for 25 tax deductions that many freelancers can take.
Self-Employed Tax Deductions You Won’t Want to Miss
When considering whether an expense is deductible or not, you may want this rule of thumb in mind: The Internal Revenue Service (IRS) guideline for freelancer tax deductions is that expenses must be ordinary and necessary.
If you purchase an item or incur an expense even if you weren’t running your freelance business, it likely would not qualify for a deduction.
Below are some key deductions you may be able to qualify for. Knowing and noting them can help you with financial planning for freelancers.
1. Home Office
Are you earning money from home? If so, one of the most common deductions for freelancers is claiming a home office on your taxes. To take this deduction, the designated space must be used regularly and exclusively for business operations, and must be the principal location where business is conducted.
You can take this deduction whether your own or rent. You can use the simplified method, which has a rate of $5 per square foot for business use of the home, with a maximum deduction of $1,500 (or 300 square feet), according to the IRS .
Or, you can use the regular method, which divides expenses of operating the home (including mortgage/rent, real estate taxes, utilities, home insurance) between personal and business use.
Calculating Home Office Tax Deductions
To maximize your deduction for a home office you may want to calculate both the simplified and the regular techniques to see which is higher.
• As mentioned above, the simplified method involves calculating your home office’s square footage (up to a cap of 300 square feet), and multiplying that by five.
• For the regular method, you would use IRS Form 8829 to figure out the number. While this is a more involved calculation, it might yield a higher number.
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2. Office Supplies
Looking for more tax deductions for freelancers? The materials you purchase to work in your home office, such as paper, pens, pencils, pads, printer ink, staples, paper clips, etc, can typically be deducted at full cost as long as the items are used for business.
3. Hardware and Equipment
If you require specific hardware, such as a laptop, personal computer, tablet, or other types of equipment to run your business, these purchases may count as deductions.
Or maybe you earn money from a side hustle like photography or jewelry making, which requires specialized equipment.
You may want to talk to your accountant about the best way to deduct these expenses, as some bigger purchases that will be used beyond one year may need to be depreciated over a set number of years, rather than deducted in full.
4. Web Hosting and Online Tools
If you have a website and pay fees for web hosting, these expenses can likely be deducted from your taxes. If you use other online tools for your business (such as Dropbox or Zoom), fees you pay for these services can also usually be deducted.
5. Phone And Internet Service
If you use the internet, a landline phone, or a cell phone for business at least some of the time, these services may qualify for a deduction.
You may want to keep in mind, however, that you can generally only deduct a portion based on your business usage.
6. Start-Up Costs
Here’s another freelance tax deduction: You may be able to deduct up to $5,000 of initial purchases and investments made to get your business up and running in its first year. Purchases that exceed that amount can often be deducted over time.
7. Employee Salaries
The cost of paying employees to work within a business can usually be deducted. These costs generally include both wages and benefits.
8. Self-Employment Tax
Are you a 1099 worker? Self-employment taxes cover freelancer contributions toward Social Security and Medicare. You can generally deduct the employer-equivalent portion of your self-employment tax, which is half the total self-employment tax.
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9. Your Car
The entire cost of ownership and maintenance of any vehicle used strictly for business purposes can typically be deducted from business income (subject to some limits). For 2023, the standard mileage rate per the IRS for business-related driving you do is 65.5 cents/mile.
Cars driven for both business and personal use can also be deducted, but only for costs incurred while conducting business. It’s wise to set up a system to keep track of when you are driving for personal vs. professional purposes.
10. Unpaid Invoices
Also known as bad debt, unpaid invoices (meaning your business is owed money that it has no hope of reclaiming) may be deductible.
However, in order for the deduction to be allowed, it must be clear to both parties that the transaction was not a gift.
11. Business License
Depending on the industry, certain state and federal licenses may be required for a business to operate. However, there may be an amortization schedule to be aware of, meaning you would deduct percentages of the cost over time.
The fees paid annually to state or local governments for obtaining those licenses can generally be deducted.
It’s wise to look further into the tax code to be sure you understand how to properly take these deductions.
12. Qualified Business Income
This is a newer self-employment deduction. If you earn $182,100 or less as a single filer (or $364,200 as a joint filer) in 2023, you may qualify for a 20% deduction on your taxable business income via the QBI, or qualified business income deduction.
13. Product Supplies and Storage Units
For freelancers who sell products, the supplies purchased in order to make those products can usually be a freelance tax deduction.
The costs of keeping business supplies and assets in a storage unit can generally also be deducted, since storage is an expense factored into the overall cost of the goods sold.
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14. Business Loan Interest
If you’ve taken out a loan to help fund your business, you may be able to deduct the interest you incur from it as a business expense.
For this to be deductible, however, a freelancer must be legally liable for that debt. In addition, both the freelancer and the lender must intend that the debt be repaid and have a true debtor-creditor relationship.
15. Meals
Sorry, buying takeout and eating it at your desk isn’t tax-deductible. But if you are traveling for business, at a conference, or dining with a client, then you can deduct 50% of the cost if you have the receipt. If you don’t have the receipt, you can take off 50% of the standard meal allowance.
16. Transaction Fees
If part of your business involves processing credit card orders, you may have an additional freelancer deduction. The processing costs a freelancer may incur by accepting credit cards payments is usually deductible as a qualified business expense.
17. Attorney & Accountant Fees
The fees charged by attorneys and accountants that are related to operating your business are typically considered tax-deductible business expenses.
That includes tax preparation fees, as well as any additional tax resolution expenses that pertain to your business.
18. Education Costs
Freelancer deductions can include the cost of education that helps you maintain or improve skills needed in your present work. This tax deduction also typically includes costs for books, supplies and even transportation.
19. Industry Events
Fees for attending conferences or conventions that are business related can typically be deducted.
Not only are the admission or registration fees often deductible, but all reasonable travel expenses accrued in order to attend the event may be deductible as well.
20. Promotional Materials
Tools used for marketing, advertising, and the general promotion of a business are considered deductible expenses. That includes advertising your product or service on social media or elsewhere.
Any expenses incurred in order to influence legislation (such as lobbying), however, are not deductible.
21. Business Membership Fees
While you generally can’t deduct dues or fees paid for memberships in clubs organized for recreational or social purposes, dues paid to join organizations that align with your specific business industry are usually considered deductible.
This includes organizations, such as boards of trade, chambers of commerce, and professional organizations (like bar associations and medical associations).
22. Business Travel Expenses
Travel costs that are associated with conducting business are considered valid income tax deductions, as long as they are ordinary and necessary and last more than one workday.
This can include flights, hotel stays, meals, getting around locally via bus/train/ride sharing services, even dry cleaning or laundry expenses while you’re away from home.
You may want to keep in mind that lavish and extravagant travel conditions generally do not qualify for deduction.
Also, day-to-day commuter expenses between home and business are not typically deductible.
23. Business Gifts
If you give a gift to a client or vendor as a thank you for conducting business with you, the cost of the gift is generally deductible up to $25 per person per year.
Extra costs such as engraving, packing, or shipping aren’t included in the $25 limit if they don’t add significant value to the gift.
24. Health Insurance
Self-employed individuals with qualifying policies are typically allowed to deduct premiums for health, dental, and long-term care for themselves and their families.
25. Retirement Plan Contributions
Just because you don’t work for a large company doesn’t mean you can’t benefit from a tax-advantaged retirement plan. Indeed, freelancers often have even more options for saving this way.
Two self-employed retirement options you may want to consider: a traditional IRA (which allows you to contribute up to $6,500 per year in pre-tax dollars if you’re under 50, and up to $7,500 if you’re older) and a SEP IRA (which allows you to contribute up to 25% of your income for a maximum of $66,000 per year for tax year 2023).
Claiming Tax Deductions
Why is it important to claim tax deductions? They will help lower how much you pay in taxes and increase how much you keep to spend and save.
If, say, you earn $120,000 in a given year and can claim $25,000 in tax deductions, then you would only be paying taxes on $95,000. That can make a big difference in your daily financial life as well as your ability to build wealth and hit your financial goals.
Tips for Freelancer Tax Deductions
If you are a freelancer, there are a couple of smart guidelines to follow as you move through the tax year.
Keeping Records of Everything
As you earn, spend, and save as a freelancer, it’s important to make a budget and track where your money is going. Keeping records of how much you are paid from different clients or customers, what you are spending on your business, and when and where those expenses are incurred (and even how they are paid) can make a big difference when tax preparation time rolls around.
Also, if you ever need that information if audited, you will be glad you have those files.
Keeping Your Personal and Business Finances Separate
As you have learned, it’s important to keep your business and personal finances separate when you are self-employed. This means your workspace, your transportation and meal expenses, and the like.
This will have important implications at tax time. For instance, you may have to parse how much of your rent or mortgage and your utilities actually go towards your home-based business vs. personal use.
• Opening a separate bank account for your business. It can be a smart move to keep your business finances separate from your personal to clarify your professional earning and spending. Many financial institutions offer business accounts to meet these needs. If you are just launching a side hustle or have a small, part-time gig, you might simply open up an additional checking and savings account to start.
Working With a Tax Professional
It’s not always easy to decipher the tax code as a freelancer or know which expenses qualify and to what expense.
Sometimes, working with a qualified tax professional can help. They are trained to know the ins and outs of the law and can guide you on correct tax filing.
As a freelancer, you can often lower your tax liability by deducting expenses that were incurred to operate your business.
There are a wide range of deductions you may be able to take, including some or all of your expenses for a home office, supplies for that home office, business events, advertising, self-employment taxes, and more.
In addition to managing your business income, you’ll also want to consider the full breadth of financial services you need, and compare which banking partner is best for your needs, whether personal or professional.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.
FAQ
Do freelancers need to declare income?
Yes, if you are a freelancer, you need to declare your income and pay taxes on it. It is wise to pay quarterly estimated taxes to avoid a large tax bill and potential penalties at tax time.
How is income tax calculated for freelancers?
In addition to regular income tax, freelancers typically need to pay a self-employment tax of 15.3% to cover Social Security and Medicare taxes. Typically, employees and their employers split that bill. But self-employed people pay the whole thing.
What happens if you don’t file freelance taxes?
Not filing freelance taxes doesn’t mean you don’t owe them. Not paying taxes can mean you are still liable for the amount you owe, plus interest and penalties.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
When you apply for a mortgage, any outstanding debts you have — including personal loans, credit cards, and auto loans — can impact how much of a mortgage you can get, and whether you even qualify in the first place.
If you’re planning to buy a home in the next couple of years, applying for a personal loan could potentially reduce how much you can borrow. A personal loan can also affect your credit — this impact could be positive or negative depending on how you manage the loan.
Whether you’re thinking about getting a personal loan or currently paying one off, here’s what you need to know about how personal loans interact with mortgages.
How Do Personal Loans Work?
A personal loan is a lump sum of money borrowed from a bank, credit union, or online lender that you pay back in fixed monthly payments, or installments. Unlike mortgages and auto loans, personal loans are typically unsecured, meaning there’s no collateral (an asset that a borrower pledges as security for a loan) required.
Lenders typically offer loans from $1,000 to $50,000, and this money can be used for virtually any purpose. Common uses for personal loans include:
• Debt consolidation
• Home improvement projects
• Emergencies
• Medical bills
• Refinancing an existing loan
• Weddings
• Vacations
Personal loans usually have fixed interest rates, so the monthly payment is the same for the term of the loan, which can range from two to seven years. On-time loan payments can help build your credit score, but missed payments can hurt it.
💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.
Can Personal Loans Affect Mortgage Applications?
Yes, getting a personal loan could impact a future mortgage application. When you apply for a mortgage, the lender will look at your full financial picture. That picture includes your credit history (how well you’ve managed debt in the past), how much debt you currently have (including personal loans, credit cards, and other debt), your income, and credit score.
Depending on your financial situation, getting a personal before you buy a house could have a positive or negative impact on a mortgage application. Here’s a closer look.
Negative Effects
A personal loan could have a negative impact on your mortgage application if the loan payments are high in relation to your income. A lender may worry that you don’t have enough wiggle room to cover your current expenses and debts, plus a mortgage payment.
A personal loan also impacts your credit score. If you’ve missed payments or paid late, this impact could be negative. A lower credit score can make it more difficult to get a mortgage, especially one with a competitive interest rate.
Positive Effects
If you have a personal loan that is a reasonable size (relative to your income), your personal loan payment history shows that you regularly pay on time, and you’re consistently paying down any other debts, a mortgage lender could see that as a positive indicator that you’d likely be a low-risk investment.
How Personal Loans Can Affect Getting a Mortgage
Here’s a closer look at the ways in which getting a personal loan can affect your ability to get a home mortgage.
Credit Score
Your credit score is one indication to a lender of how likely you are to be to repay a loan — or, in other words, how much risk your represent to the lender. A personal loan can affect your credit score in several different ways. These include:
Payment History
Your bill-paying track record has the most weight when it comes to your credit score. That means if you make regular, on-time payments on a personal loan, it could have a positive impact on your credit. That, in turn, could have a positive impact when applying for a mortgage.
Not making regular, on-time payments on your personal loan, on the other hand, can negatively impact your credit, leaving you with higher-rate interest rate options on a mortgage.
New Credit
When you apply for a personal loan, the lender will run a hard credit inquiry. This type of credit check can have a small negative impact on your credit for 12 to 24 months. As a result, applying for a personal loan (or any type of new credit) can negatively impact your credit score in the short term.
Credit Mix
Having a variety of different account types can be good for your credit. If your credit report only has revolving accounts, like credit cards, getting a personal loan (which is a type of installment credit) could diversify your credit mix and have a positive influence on your credit score.
Debt-to-Income Ratio
Your debt-to-income (DTI) ratio refers to the total amount of debt you carry each month compared to your total monthly income. Your DTI ratio doesn’t directly impact your credit score, but it’s an additional factor lenders may consider when deciding whether to approve you for a new credit account, such as a mortgage. Having a personal loan will increase your debt load and, in turn, your DTI ratio.
To calculate your DTI ratio, you add up all your monthly debt payments and divide them by your gross monthly income (that’s your income before taxes and other deductions are taken out). Next, convert your DTI ratio from a decimal to a percentage by multiplying it by 100.
In general, the highest DTI ratio you can have and still get qualified for a mortgage is 43% (including the mortgage payment). However, lenders prefer a DTI ratio lower than 36%, with no more than 28% of that debt going towards mortgage payments.
Should You Pay Off Your Personal Loan Before Applying for a Mortgage?
If you already have a personal loan, are close to the end of your repayment term, and can afford to pay off the remainder before applying, eliminating the debt could improve your chances of getting the mortgage amount you’re looking for.
Another reason why you may want to pay off your personal loan before buying a home is that home ownership generally comes with a lot of additional expenses. Not having a personal loan payment to make each month can free up cash you may need for other things, like mortgage payments, homeowners insurance, and more.
That said, if paying off a personal loan will use up money you had earmarked for a downpayment on a home or leave you cash poor (with no emergency fund), it might be better to keep making your monthly payments, rather than pay off your personal loan early.
💡 Quick Tip: If you’ve got high-interest credit card debt, a personal loan is one way to get control of it. But you’ll want to make sure the loan’s interest rate is much lower than the credit cards’ rates — and that you can make the monthly payments.
Tips To Help Your Mortgage Application
Generally speaking, having a personal loan won’t make or break your odds of getting a mortgage. If you’re concerned about being approved, however, here are some steps that can help.
• Review your credit report and correcting any errors or any discrepancies.
• Consider paying down debt to lower your DTI ratio.
• Avoid applying for new credit leading up to your mortgage application.
• Consider taking some time to increase your down payment amount (the more you can put down, the less risk you pose to a lender).
• Research and compare lenders and their products, rates, and terms before deciding who you’ll work with.
• Lock in your interest rate when you get an offer that works for your financial situation.
A personal loan can have a negative or positive impact on your mortgage application. If you’re not planning to apply for a mortgage right away, and can comfortably manage the personal loan payments (and possibly even pay off the loan early), getting a personal could have a positive effect on your credit and make it easier to get a mortgage.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
Photo credit: iStock/kate_sept2004
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Getting a personal loan is typically a simple process but many lenders require at least a good credit rating and a stable income for approval. Banks tend to have stricter qualification requirements than private lenders. The type of personal loan you get — secured or unsecured — can also have an impact on how hard the loan is to get.
Once approved, a personal loan offers a lot of flexibility — you can use the funds for a wide variety of expenses, from planned home repairs to unexpected medical bills. Unlike loans with a specified purpose, like an auto loan or mortgage, personal loan funds can be used for virtually any type of expenditure.
Here’s what you need to know about personal loans and how to increase the chances that you’ll qualify.
Types of Personal Loans
A personal loan is essentially a lump sum of money borrowed from a bank, credit union or online lender that you pay back in fixed monthly payments, or installments. Lenders typically offer loans from $1,000 to $50,000, and this money can be used for virtually any purpose. Repayment terms can range from two to seven years.
While there are many different types of personal loans, they can be broken down into two main categories: secured and unsecured. Here’s how the two types of personal loans work:
• Secured personal loans are backed by collateral owned by the borrower such as a savings account or a physical asset of value. If the loan goes into default, the lender has the right to seize the collateral, which lessens the lender’s risk.
• Unsecured personal loans do not require collateral. The lender advances the money based simply on an applicant’s creditworthiness and promise to repay. Because unsecured personal loans are riskier for the lender, they tend to come with higher interest rates and more stringent eligibility requirements.
💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.
Getting a Personal Loan From a Bank
In addition to the type of personal loan you choose, the lender you borrow from can have an effect on how hard the loan is to get. For many borrowers, their bank is an obvious first choice when the time comes to take out a personal loan.
Banks sometimes offer lower interest rates than other lenders, particularly if you’re already an account holder at that bank. However, they may also have steeper eligibility requirements, such as a higher minimum credit score. Compared to an online lender, banks tend to have a more time-consuming application process, and the loan may take longer to disburse.
Still, the convenience of utilizing the bank you’re already familiar with and the comfort of in-person customer service may be worth the trade-off for qualified borrowers.
Getting a Personal Loan From a Private Lender
A private online lender is a non-institutional lender that is not tied to any major bank or corporation. Online lenders are less regulated than banks, allowing faster application processes and more lenient eligibility requirements. However, some online lenders will have higher interest rates and fees compared to traditional banks, so it’s key to shop around. One of the biggest advantages of a private online lender is convenience. You can complete the entire process online and funding is typically available within the week.
Is It Harder to Get a Personal Loan From a Bank or Private Lender?
Generally speaking, it may be more difficult to get a personal loan from a bank than a private lender — but your best bet is to shop around and compare a variety of personal loan options, then see where you’ll get the best interest rate.
Here are the basic differences between getting a personal loan from a bank versus a private lender at a glance:
Bank
Private Lender
Interest rates may be lower, though eligibility requirements may be more stringent
Interest rates may be higher, but eligibility requirements may be more lenient
You could get lower rates or easier qualification requirements if you have an existing relationship with the bank
Some private lenders market personal loans specifically to borrowers with poor or fair credit — though at potentially high interest rates
You may have the option to visit the bank in person for a face-to-face customer service interaction
The entire process may be done online
Loans typically take longer to process and you may have to visit a branch in person to finalize the paperwork
Funds might be disbursed the same day or within a day or two
Is It Easier to Get a Small Personal Loan?
Generally, yes. Loan size is another important factor that goes into how hard it is to get a personal loan. It’s much less risky for a lender to offer $1,000 than $50,000, so the eligibility requirements may be less stringent — and interest rates may be lower — for a smaller loan than for a larger loan.
That said, there are exceptions to this rule. Payday loans are a perfect example. Payday lenders offer small loans with a very short repayment timeline, yet often have interest rates as high as 400% APR (annual percentage rate). Even for a smaller personal loan, it’s generally less expensive to look for an installment loan that’s paid back on a monthly basis over a longer term.
What Disqualifies You From Getting a Personal Loan?
There are some financial markers that can disqualify you from getting a personal loan, even with the most lenient lenders. Here are a few to watch out for.
Bad Credit
While the minimum required credit score for each lender will vary, many personal loan lenders require at least a good credit score — particularly for an unsecured personal loan. If you have very poor credit, or no credit whatsoever, you may find yourself ineligible to borrow.
Lack of Stable Income
Another important factor lenders look at is your cash flow. Without a regular source of cash inflow, the lender has no reason to think you’ll be able to repay your loan — and so a lack of consistent income can disqualify you from borrowing.
Not a US Resident
If you’re applying for personal loans in the U.S., you’ll need to be able to prove residency in order to qualify.
Lack of Documentation
Finally, all of these factors will need to be proven and accounted for with paperwork, so a lack of official documentation could also disqualify you.
How to Get a Personal Loan With Bad Credit
If you’re finding it hard to get a personal loan, there are some steps you can take to improve your chances of approval. Here are some to consider.
Prequalify With Multiple Lenders
Every lender has different eligibility requirements. As a result, it’s worth shopping around and comparing as many lenders as you can through prequalification. Prequalification allows you to check your chances of eligibility and predicted rates without impacting your credit (lenders only do a soft credit check).
Consider Adding a Cosigner
If, through the prequalification process, you find that you don’t meet most lender’s requirements, or you’re seeing exorbitantly high rates, you might check to see if cosigners are accepted.
Cosigners are family members or friends with strong credit who sign the loan agreement along with you and agree to pay back the loan if you’re unable to. This lowers the risk to the lender and could help you get approved and/or qualify a better rate.
Include All Sources of Income
Many lenders allow you to include non-employment income sources on your personal loan application, such as alimony, child support, retirement, and Social Security payments. Lenders are looking for borrowers who can comfortably make loan payments, so a higher income can make it easier to get approved for a personal loan.
Add Collateral
Some lenders offer secured personal loans, which can be easier to get with less-than-ideal credit. A secured loan can also help you qualify for a lower rate. Banks and credit unions typically let borrowers use investment or bank accounts as collateral; online lenders tend to offer personal loans secured by cars.
Just keep in mind: If you fail to repay a secured loan, the lender can take your collateral. On top of that, your credit will be adversely affected. You’ll want to weigh the benefits of getting the loan against the risk of losing the account or vehicle.
💡 Quick Tip: If you’ve got high-interest credit card debt, a personal loan is one way to get control of it. But you’ll want to make sure the loan’s interest rate is much lower than the credit cards’ rates — and that you can make the monthly payments.
The Takeaway
You can use a personal loan for a range of purposes, such as to cover emergency expenses, to pay for a large expense or vacation, or to consolidate high-interest debt. Personal loans aren’t hard to get but you usually need good credit and a reliable source of income to qualify. The better your financial situation, generally the lower the interest rate will be.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
Is it hard to get a personal loan?
Personal loans aren’t necessarily hard to get but you typically need good credit and reliable income to qualify. Secured personal loans (which require pledging something you own like a savings account or vehicle) are generally easier to qualify for than unsecured personal loans
Is it hard to get a personal loan from a bank?
Banks tend to have more stringent qualification requirements for personal loans than private online lenders. Getting a personal loan from a bank can be a good move if you have good to excellent credit, an existing relationship with a bank, and time for a longer approval process.
What disqualifies you from getting a personal loan?
You will be disqualified for a personal loan if you do not meet a lender’s specific eligibility requirements. You may get denied if your credit score is too low, your existing debt load is too high, or your income is not high enough to cover the loan payments.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
