Tax time can be challenging for individuals with any job, even those who earn salaries or hourly wages. Freelance writers and other individuals who are self employed face additional unique challenges when doing their taxes.
If you have earned your living as a freelance writer for any length of time, you likely are already familiar with many of the basic principles of taxes for the self-employed. You know to fully report all of your income from all sources and clients, for example, and you have deducted the out-of-pocket cost of your health insurance for years. Even experienced freelance writers, however, may be unaware of certain newer tax regulations.
Taking a deduction for a home office is a very common tax strategy for many freelance writers who work at home. Unfortunately, doing so improperly is also one of the most common IRS red flags for selecting tax returns to audit. The IRS imposes quite a few regulations on how you are allowed to deduct for a home office, and many people unwittingly do so incorrectly. The most important thing to remember is that any part of your home that you claim as being used for your business must be exclusive to that business. Any parts of your home that you sometimes use for ordinary household purposes and sometimes use for your business may not be deducted. Additionally, your home office must either be your primary place of business, or at least a location in which you regularly meet with clients. As long as your home office meets these requirements, you can deduct a percentage of many of your household expenses by multiplying them by the square footage of your home office divided by the square footage of your entire home.
Another issue facing many freelance writers is the use of the new 1099-K tax form. Although many of your clients will likely still issue ordinary 1099-MISC forms, you may also begin to receive 1099-K forms from some. The form is intended to report payments processed by third-party companies, which some clients use to pay their freelancers. The IRS is not requiring filers to report amounts from 1099-K forms separately – this year. In the future, you will be required to report amounts from 1099-K forms and amounts from 1099-MISC forms in two different places. Of course, you still need to report all income you earn this year; simply add the 1099-K totals to the 1099-MISC income totals.
Although doing your taxes yourself can seem like a tempting option compared to the cost of hiring a tax professional, it becomes significantly less appealing compared to the cost and hassle of an audit. Seek a professional’s help if you have any doubt about your taxes. If you decide to do your taxes yourself, take your time to understand every deduction you take to minimize your risk of being audited.
Caleb M is a freelance writer available on WriterAccess, a marketplace where clients and expert writers connect for assignments.