If you’re making the switch to freelancing, it’s easy to miss some of the details that go along with completing your taxes. There are some major differences in the paperwork if you’re working for a company or if you’re self-employed. While there are plenty of ways to save money on your taxes or even make them easier to complete, there are some nuts and bolts that every freelance writer should know.
The Question of Quarterly Estimated Tax Payments
As a freelancer, you don’t have a boss — which means that you don’t have anyone handling your taxes during payroll. You’re completely responsible for making sure that your taxes get paid. In the US, the IRS has created a system where anyone who is self-employed submits tax payments every quarter. The amount is based on how big your tax liability was on last year’s tax return, although if you’re making more money this year, the IRS expects you to bump up your payments.
Not getting those payments in on time can result in penalties, although some freelancers may have a little more room to maneuver. If you have a job where a certain portion of your paycheck gets withheld for taxes or it’s your first year freelancing full-time, you may have a little more flexibility.
Watching Out for Form 1099
Any US-based client you work with probably will be reporting the money they’ve paid you to the IRS with a Form 1099, which is used specifically to report income paid to anyone who is a contractor or otherwise self-employed. You will receive a copy of any Form 1099 submitted by the beginning of March, so that you can use it to complete your own taxes. Unfortunately, it isn’t impossible for a client to send you an incorrect form (or forget to send you a form entirely). It’s important to double check each Form 1099 against your own records to make sure that the information is accurate.
Get Every Deduction You Can
As a freelance writer, you can write off any necessary business expenses as deductions on your taxes. Whether you had to pick up a new computer or you pay for a phone line for your business, you can reduce the amount of money you are expected to pay in taxes by claiming these deductions. You can even claim a portion of your home expenses (like your utility bills and rent) as costs of doing business as long as you have a dedicated home office.
What’s Coming Next
We’ll be getting into the gritty details of claiming taxes, reducing the amount of taxes you have to pay and the typical tax problems freelance writers can run into. However, I need to offer a disclaimer: it is important to remember that everyone’s tax situation is different — in order to make the right decisions about your own taxes, it’s important to talk to a tax professional who can walk you the specifics of your own tax situation.