Tax Tips for Professional Freelancers
With April 15th creeping up, most of the nation is laser-focused on filing their taxes before the deadline and spending their returns. But, for freelancers, taxes are a year-round project that is significantly more complicated than filling in a couple of forms based on a tidy W-2. While most freelance copywriters prefer to focus on creating content, another important, and much less exciting, part of the job is accounting for income and expenses and filing self-employment taxes.
Quarterly estimated taxes
While the infamous April 15th deadline comes just once a year for traditional employees, self-employed freelancers must make quarterly estimated payments. The IRS requires that 90% of annual tax liability to be paid in advance, through either withholding or estimated payments of 15.3% of your income. Since freelancers don’t have federal income taxes withheld from paychecks, they are responsible for using Form 1040-ES to calculate their quarterly tax responsibilities. Payments must be postmarked by April 15, June 15, September 15 and January 15 for the preceding quarter. However, if you expect to owe less than$1,000 in taxes annually, or if 90% of your tax liability is withheld from another source of income, estimated quarterly payments aren’t required. For more detailed information on the fun of quarterly payment, visit the IRS Self-Employed Individuals Tax Center.
We said it before, we’ll say it again: deduct, deduct, deduct
Both federal income and self-employment taxes are based on your net income, or amount that is left over after you subtract business expenses. The obvious way to hand over less to Uncle Sam is to have a lower net income. Since making less money isn’t particularly appealing to most freelancers, the other option is to show that a portion of your income goes into running your freelance writing business.
Start by hanging on to your receipts for necessary business expenses such as office supplies, software, reference materials, website fees and business cards. As soon as you make a business related purchase, track the expense and file the receipt. Don’t be the freelancer who is pawing through bank and credit card receipts trying to remember which expenses are tax-deductible. Not only will you miss out on deductions, in the event of an audit the IRS will require receipts as proof of your expenses. You might know that the Amazon purchase on your credit card statement was for pens and printer ink, but your friendly IRS agent may assume it was for pricey shampoo and new shoes.
If you work from home, a portion of your rent, mortgage, homeowner insurance and utilities are deductible. However, to qualify, you must have a dedicated workspace. A home office or a desk in the family room that is dedicated solely to your writing business is eligible, but a corner of the kitchen table where you also eat meals and the kids to their homework is not. Office-related deductions are based on the percentage of your home that is used for business. So, if your office takes up 200 square-feet of your 1000-square-foot home, you could deduct 20% of your home-related expenses.
Similarly, you can deduct the percentage of your Internet usage that is used for business. If you work online eight hours a day and your kids play World of Warcraft for another two hours, deduct 80% of your Internet fees.
Use a professional
Doesn’t it make you envious when you see someone whip out a W-2 and plop a few numbers into some blanks and declare their taxes done? Between quarterly payments, confusing forms and endless deductions, filing self-employment taxes can get complicated very quickly. Rather than tackling the challenge alone, enlist the help of a seasoned professional. Whether you choose an accountant or a tax preparer, they should be able to answer your questions and accurately file your taxes. Even if you are committed to filing yourself, accountants even offer consultations that will help you analyze your tax situation and set you on the right path to getting organized.
Michelle S is a freelance writer available for projects at WriterAccess.