freelance taxes

3 Financial Tax Breaks to Help During COVID-19 in 2021

June 27, 2021 by FWJ Leave a Comment

2021 has been a struggle. It’s difficult to make ends meet during an ongoing pandemic where the world and how it operates as we know it has changed. Fortunately, there are many options for tax relief for people who qualify in 2021.

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Top Countries to Live In as a Remote Worker

September 29, 2020 by Freelance Writing Jobs Leave a Comment

While the digital nomad lifestyle was already gaining steam pre-COVID, more companies are now looking into the potential of long-term remote work, and even questioning the need to return to a traditional office space at all. [Read more…]

5 Reasons So Many Freelancers Are Behind On Their Taxes

November 21, 2019 by FWJ Leave a Comment

Depending on your field, freelancing doesn’t need to have a lot of expenses. All you really need is a computer, internet access, and plenty of coffee. One cost you can’t avoid as a freelancer, though, are your tax bills. Unlike typical W-2 employees, freelancers have to pay quarterly taxes at a rate of just over 15%, and that’s a big bill, especially if you’re not being paid on a regular basis. This leads many freelancers to fall behind on their taxes. [Read more…]

3 Legal Issues Every Freelance Writer Should Know About

January 16, 2017 by FWJ Leave a Comment

Close to 54 million Americans are considered freelancers and that number is expected to grow 50% by 2020. While the freelance world can be alluring, there are many things you should consider before jumping in and applying for writing jobs.

The legal aspects of freelance writing are often overlooked, but they are nonetheless important to understand. Starting a successful freelance career is difficult enough. The last thing you need is added legal trouble. Avoiding the three following legal pitfalls will prevent you from receiving correspondence threatening legal action or a visit from the IRS. [Read more…]

Tax Tips: Understanding Form 1099-MISC

April 29, 2013 by Angus Shaw Leave a Comment

You have this freelance writing thing down cold. Your writing sparkles with informative content that educates and entertains audiences of all ages and backgrounds. Editors are calling on the hour with request for more work at whatever rate you name. You finally ditch that boring nine to five job and now spend your days with your laptop in that trendy coffee shop where all the cool people hang out.

Wait, that is not what is happening to you? Me neither. However, we are working, and getting paid, so it’s not all that bad.

Speaking of getting paid, you will have to report that income to the IRS. Since you are getting paid as a freelance writer, you are not an employee so you would not get a W-2 like at your regular job, but would get a 1099-MISC. Additionally, your clients will need to report how much they pay you to the IRS if they paid you more than $600. They would use Form 1096 to report all the amounts they paid to freelancers, and would send you a Form 1099-MISC which shows the amount they paid you for the articles you wrote.

The IRS requires that you get these by January 31^st every year, so you should receive them in the mail in late January. There are a few things you should do once you receive this from:

Make sure you did work for the person or company who sent you the form. Keep in mind that the name on the form may be different that who you normally deal with as you may have been dealing with a subsidiary, and the 1099 would have come from the parent. If you didn’t do work for the company or person who sent it to you, the company who sent it to you may be trying to defraud the IRS by over reporting the amount in expenses they had. If you hadn’t done work for them, contact them for an explanation. If you can’t get a satisfactory answer, contact the IRS.
There is a box labeled RECIPIENT’S Identification Number. Make sure that this is either your social security number or the Employer Identification Number (EIN) you were assigned when you registered your company with the IRS. If it doesn’t match, get in touch with the sender to correct it.
If you got royalties for your work, these would show in Box 2 of the form.
You may be subject to something called backup withholding if you did not give a taxpayer identification number to the person or company who paid you. You will have had to have given a W-9 containing this information to the person or company paying you; otherwise you will be subject to backup withholding. Box 4 on the 1099-MISC will show the amount of backup withholding taken from the amount owed to you. If you had backup withholding, check your records to see if you sent them a W-9 with your information. Contact the company if you had sent them the information so they can adjust their records, and send you a corrected 1099-MISC.
Box 7 will show the amounts paid to you as a writer. This amount will need to be reported on Schedule C of your tax return. Check this amount with your records to see if the amounts tie to what you billed the company. Contact the person or company who sent it to you if there is a difference in what your records say
Box 11 will show the amount of foreign tax you paid. You may be able to either deduct this or claim it as a credit on your tax return. Box 12 will show to which country the tax was paid.

Dealing with form 1099-MISC is just part of doing business as a writer and is nothing to be nervous about. An understanding of what is on the form will help you to properly report your income on your taxes. If you run into something you don’t understand contact a good accountant, who is always happy to answer questions and help out people who need assistance with tax matters.

In accordance with Circular 230 Treasury Department Regulations, we are required to advise you that any tax advice contained in this article may not be relied upon to avoid penalties under the Internal Revenue Code. If you are interested in a written opinion that can be relied upon to prevent the imposition of tax-related penalties, please contact the author.

About the Author

The author, Chris Peden, CPA, CMA, CFM, has over 15 years of experience with helping people and companies with organizing and making sense of their finance information, as well as meeting their regulatory compliance requirements. He is also available as a freelance blogger if you need an article on finance, accounting or taxes for your blog. He can be reached at [email protected], and his website can be found at http://cmpfinancialconsulting.homestead.com/.

Image via 401(K) 2013

Alleviate Quarterly Estimated Tax Burden By Paying… Monthly?

June 8, 2010 by david 7 Comments

Quarterly estimated taxes are coming up next Tuesday. Honestly, I don’t really like to think about emptying my pockets for Uncle Sam until I absolutely have to, but paying quarterly taxes in April, June, September and January Is just a sad fact of life for we poor, suffering freelance writers.

I have been in the bad habit of letting my tax burden pile up, and paying the entire amount that I owe right on the due date. On one hand, this allows me to keep my money in my pocket longer, but on the other hand, I have four massive bills to dread every year (not to mention annual income taxes).

So, starting this quarter, I have decided to turn over a new leaf and start paying my quarterly estimated taxes monthly. Here are the pros and cons of this (possibly insane) course of action as I see them:

The Pros of Paying Quarterly Estimated Taxes Monthly

Paying quarterly estimated taxes monthly breaks up the tax burden. There’s less chance of failing to plan for January 15^th, April 15^th, June 15^th or September 15^th and suddenly finding yourself in financial crisis.
You can also inoculate yourself against penalties. If the IRS finds that a sole-proprietor hasn’t paid her full complement of taxes over the year, they’ll charge interest and a penalty.
Filing monthly is also fairly easy these days. The IRS gives us Form 1040-ES, but it’s set up with only four, quarterly vouchers. Nowadays, with electronic filing through the Electronic Federal Tax Payment System, you can pay your federal taxes just like you’d pay your other bills online.

The Cons of Paying Quarterly Estimated Taxes Monthly

The money you pay out in taxes early could be sitting in an interest-bearing account making money for you, not Uncle Sam.
Something might change with your business. You might decide to throw in the towel, or maybe your industry self-destructs. Suddenly, your income is much lower than you expected for the year, but you’ve already paid far too much in taxes. You’ll get the overpayment back as a tax refund, but that isn’t until you file your annual income taxes after January 1^st.

For now, I’m going to stick with the monthly plan. How about you? Do you suck it up and shell out quarterly estimated taxes four times a year or go a different route when it comes to quarterly estimated taxes?

The Pros and Cons of a Separate Bank Account for Freelance Income

May 11, 2010 by david 8 Comments

Hooray! A check from a client came in. Now what? Do you stick it in your personal bank account where it mingles with your part-time job income and your spouse’s direct deposit? If so, you might be making your life needlessly harder when it comes to keeping your freelancer finances straight. A couple of weeks ago I wrote about all the fine tax deductions freelancers like you and me get to take at tax time. But be warned, those nifty little deductions can get lost among payments to the grocery store, the vet, and Uncle Hal’s Hardware and Bait Shop. And don’t get me started on visits to the office supply store. When you’re doing your taxes a year later, it’s impossible to remember whether that September 1^st trip to Staples was to buy your printer cartridges or your munchkin’s school supplies.

The obvious solution to this headache? A second bank account, devoted solely to your freelancing income. But not so fast, there are pros and cons to opening a second bank account solely for your freelancing income.

Just Do It: Two Bank Accounts are Better than One

The biggest advantage of a business account is peace of mind at tax time. Deposit all of your income into the account, pay all of your expenses out of the account, and your neat and orderly bank statements are your accountant’s dream at the end of the year. There’s no need to worry about accidentally deducting a personal expense and ending up with egg on your face (and no eggs in your fridge) in case of an audit. And there’s no chance of you forgetting a tax deduction because a business expenses got mixed in with your household purchases.

If you want to keep your financial life neat, simple, and uncomplicated. Then opening a second checking account for your freelancing income and expenses may be for you.

Don’t Do It: Commingle Those Funds

Have you deposited a paper check lately? Then you know that you sometimes have to wait a day or more for newly deposited funds to become available. I think we all remember the days of waiting impatiently for a check to clear. If you open a business bank account, you might put yourself through this irritation twice – once when the check clears in your business account, then once when transferring your funds from your business account to your personal account. Not to mention, many banks charge fees for everything. When opening a second bank account, you may end up nickel and diming yourself out of your profits.

Besides, who wants to balance two checking accounts at the end of the month? Some tax pros, like June Walker the well-known accountant to indies, say Schedule C-ers (us unincorporated folks) have no need of a separate bank account as long as we keep our financial house in order. June gives the example of a freelancer buying groceries. Some of the food is for the family, while some is for a client who’s coming to dinner. The ingredients used in client’s risotto are tax deductible, while the munchkins’ Teddy Grams are not. Does she pay with her business account or her personal account? (Or does she drive the clerk nuts by separating her groceries into piles?) A simple visit to the grocery store becomes a hair-tearing experience when a freelancer tries to use two accounts.

If you feel confident that you can keep track of your freelancing income and expenses, then you may not need to bother with a dedicated bank account for your business.

A final note: If you are incorporated and commingle your business and personal funds, you could be in big trouble come lawsuit or audit time. Check with your accountant about your options as an S-Corp, LLC or other incorporated entity.

Jennifer Escalona is not an accountant, nor does she play one on TV. Be sure to consult your financial pro before making important financial decisions about your business.

Pay Less to Uncle Sam Later by Tracking Your Tax Write-Offs Now

May 4, 2010 by david 7 Comments

Last week I wrote about how, like it or not, keeping track of tax deductions is a year-round job for freelance writers. Yes, I know. Yuck. Don’t you hate when people are part of the problem and not part of the solution? For that reason, I decided to follow up with a post about what you need to know about keeping track of those pesky deductions throughout the year.

Hang on to Receipts

First, keep receipts or invoices for anything you purchase that could even remotely be considered part of your business. Even if you aren’t sure whether your book on stress management is a deductible business expense, a savvy accountant can help you sort it all out at the end of the year.

If you have trouble managing your receipts, a service like Shoeboxed can be your best friend. This Durham, NC-based company sends you a friendly blue envelope, allows you to stuff all of your paper receipts inside, pays your postage, scans and digitizes them for you, then stores them on the cloud in an easily searchable format. Believe me, at the end of the year, your accountant will appreciate you using Shoeboxed for your receipts much more than she will appreciate you using a box for shoes.

Be Your Own Bookkeeper

Okay, or hire somebody. Either way, keep track of all of your business expenses as you go along. Don’t be like me. When preparing my 2008 tax return last year, I found myself logged into Paypal eyeballing mysterious transactions from places like “HistoryImage” and trying to remember what on earth they were for. Were they business expenses or had I bought a framed print of a turn-of-the-century preteen bicycle messenger smoking a hand rolled cigarette? (It turns out I had, but that’s a story for a different day.) If I’d taken the time every week or month to jot down my business expenses, I wouldn’t have had to face my entire sordid 2008 internet purchase history.

Expenses such as utilities are also much easier to manage if you record them as they come in rather than trying to search through your bills (and calculate percentages) at the end of the year. You don’t want to let a single business expense slip through your fingers because every expense you record means that you get to keep more money in your pocket at tax time.

Write it Down

As for my own bookkeeping, I started out keeping track of all my business income and expenses in an Excel spreadsheet. If you’re spreadsheet savvy and have few expenses, you can probably get away with simply recording every transaction on your spreadsheet. Just make sure that you note what each expense was for. By the end of the year, you’ll forget why you spent $19.77 at “Rami Campus.”

I would share my own rudimentary Excel template, but my accountant made me promise never to foist such a horrendous document on the world ever again. I did find a few income and expense tracking spreadsheets online, but all of them would require modification to suit a freelancer’s needs, so I suggest creating your own or surfing around until you find the one that works best for you.

That is, unless you don’t want to bother with spreadsheet creation. As soon as I realized that my spreadsheet was hopelessly convoluted, I moved on to tracking my income and expenses in Outright.com, a service designed with sole-proprietors just like me in mind. (Full disclosure: Outright.com is my client, though I was a user first.) A previous FWJ posts covers the ins and outs of Outright.com for freelance writers, but suffice it to say that Outright.com is a free online application that helps freelancers easily record income and expenses without the spreadsheet.

No matter what solution seems right for you, be sure that you keep your receipts and record your income and expenses throughout the year. Come tax time, you’ll be glad you plucked all of those juicy write-offs out of business expense obscurity.

Now’s the Time to Track Those Tax Deductions

April 27, 2010 by david 7 Comments

Wait, what? But April 15th just passed, you’re saying. Can’t I please get a break from all this tax talk?

Sadly, no. While they’re no fun to think about, if you’re a freelance writer, tax deductions are a part of your life all year round. And trust me, you want to think about tax deductions because they’re going to save you money in the long run.

What Can I Deduct?

Almost anything you buy to use in your business can be deducted on your taxes. In the past, respectable tax payers have been able to convince the IRS that cat food, beer, and even breast implants are viable tax deductions. While you’re probably not going to convince the IRS that your new DDD’s are integral to your freelance writing business, there are plenty of deductions you can safely take:

(Just because I said that doesn’t mean you shouldn’t run all this by an accountant or tax pro before filing taxes. Please don’t substitute this blog post for advice from a tax professional.)

Office Supplies – It’s fairly easy to be a “green” freelance writer, but until the world goes entirely paperless we’ll always need supplies like printer ink and pens. Save your receipts when you jet out to the office supply store.

PayPal Fees – Do you grimace in pain every time you see PayPal bite a chunk out of your invoice? Never fear. You can get that approximately 2.9%+.30 back at tax time by writing it off as a bank fee.

Business Phone – This deduction is easy to take if you maintain a separate phone line for your business, but really, in the age of the smart phone, how many of us do that? Just a couple of weeks ago the IRS removed cell phones from their “listed property” category. While tax pros seem to agree that this is good news, the IRS hasn’t yet issued any guidance on how sole-proprietors like us should treat cell phones that we use for both business and personal purposes on our 2010 taxes. Until they do, stay tuned!

Professional Services – Do you use an accountant at the end of the year? A bookkeeper? Maybe a business coach? You used those services to help your business and you can write them off.

Professional Memberships and Networking Events – I’ve been to networking events that set me back hundreds of dollars. Somehow the fact that I’ll be able to write off those fees at the end of the year has helped me more easily swallow forking over that cash.

Mileage – If you drive your personal auto to meet your clients, note your beginning and ending mileage in a mileage log. At the end of the year, you can deduct .50/mile. Your bus, train or taxi fare is deductible, too.

Contractors – The amount you pay anybody you hire to help you work in your business is tax deductible. Just be sure to send your contractors a 1099 by the end of January every year.

Web Hosting – Though there is a great deal of debate about how to categorize web hosting on your taxes, it most certainly is a deductible business expense.

Advertising – Did you take out an ad or print up some brochures? Deduct it!

Home Office –The home office deduction can be one of the larger deductions a freelancer like us takes, but it can also trip you up if you’re not careful. Long story short, to take a home office deduction you must use a precisely delineated portion of your home (i.e. a room, a shed, a garage) as your office and for no other purpose. From there, you can deduct the amount that you pay in rent, mortgage, etc. for the percentage of your home used for business. In other words, if you use 100 square feet of your 1,000 square foot house as an office, then you can deduct 10% of your rent or mortgage as part of your home office deduction. For homeowners, this can start to get tricky when it comes to mortgage interest, and don’t even think about selling your home unless you want a huge tax headache. The home office deduction is one of those tax time quandaries that reminds us all why accountants are so invaluable.

Utilities – These go hand in hand with the home office deduction. If you deduct 10% of your rent or mortgage as your home office deduction, you can also deduct 10% of your utility bills. In my case, these amounts are usually under $20 per month, but they add up over the year.

Nothing Personal, It’s Just Business

Keep in mind when it comes to tax deductions that you can only deduct the portion of anything – your utilities, your PayPal fees, etc. – that you use for business. The IRS tends to frown upon sloppy bookkeeping and letting your personal finances bleed all over your Schedule C business taxes. Because of that, next week I’ll provide answers to the age old question, “How on earth do I keep track of all these tax deductions anyway?”

There are thousands of tax deductions out there. As a freelance writer, do you regularly take any tax deductions that didn’t make this list? Share with your fellow writers so we can all keep Uncle Sam out of our back pockets.

Jennifer Escalona is not a tax professional and this post should not be taken as tax advice. She’s just a freelance writer who has battled the tax laws and won.

Freelance Writing Jobs: Frequently Asked Questions

March 21, 2010 by david 8 Comments

At Freelance Writing Jobs we strive to provide you with the best information possible about starting your freelance writing career. With so many posts offering tips and advice, it can be hard to find useful information that’s not on the front page of this blog. Since we receive a lot of email asking for tips on getting started as a freelance writer, how to set rates and more, I thought it was time for a static “Frequently Asked Questions” page. If you’re starting out as a writer, or just want a refresher course, use this handy list as a one stop shopping experience for all things freelance writing.

Warning: Work in progress. This list is by no means complete and will receive periodic updates, so do check back often.