While April 15 seems like an eternity from now, it never hurts to be on top of your tax game.
For the freelance writer, he or she should be focusing in on their tax information throughout the year, not just panicking the week before taxes are due. Often, freelancers come running to their tax person weeks or days before the April filing deadline with loads of notes, receipts and more. That’s when the fun (not really) begins.
Tax Tips for Freelancers
In order to better prepare yourself as a freelancer months and not weeks or days ahead of the deadline, keep these tips in mind:
- Uncle Sam wants his cut–Having been a freelancer for more than 20 years, I can speak from experience when I say I initially thought it was not important to keep a paper trail. Well, I learned quickly that was not a good idea. Now, I copy all invoices from those I write for, document my mileage and more. In most cases, those who make under $600 total do not have to report their earnings, but be sure to add up what you make for the year so it isn’t $1 or $2 over that.
- Make note of the necessary forms–It is very easy to wait until the last minute to round up the forms you will need to file. If you make $600 or more, your U.S. client is required to provide you with a 1099. The 1040 informs you what to place where on the return. If you use a software package to do your taxes it will ask you if you have 1099 income to report.
- Document invoices, miles, etc.–If you have to declare income, be sure to keep your pay stubs from during the year for your records. While each U.S. client is supposed to give or mail you a 1099 document by late January recording how much you made in the previous year, it never hurts to have your invoices on hand. If their total and what you think you made are off, the invoices will help. Also, record any mileage, supplies etc. needed for your assignments. And, it is your responsibility to follow up with the client should they not send you a form by the end of January. The excuse of “I didn’t get a form in the mail” will not hold up should you be audited at some point down the road.
- Report major purchases–When I bought a new desktop computer at home to do my freelance work initially, I made sure to declare it as an expense. You can also do the same with any necessary phone calls to complete your assignments, electricity, etc.
- Join the crowd–In the event you join up with a professional writer’s group or pay for the acquisition of a business license, these too are tax deductible. As with the earlier items, make sure you have paperwork/receipts documenting such activities.
Now that you’ve got your records together, you need to prepare to report your taxes.
How Will I File My Paperwork?
For some individuals, doing their taxes the old-fashioned way is still the preferred choice. For others, using tax software is the way to go.
Should you choose the tax software route, keep in mind some helpful hints:
- The majority of tax software programs begin with simple instructions to enter one’s name, address, phone number, social security details and filing status.
- The software then requests information regarding any W-2s, 1099s or other forms.
- Answer any questions regarding purchases in the last year for your freelance work like a printer, computer, notebooks, pens, tape recorders, phones, etc.
- Report on whether or not you used a portion of your residence as a home office. To do this you will need to determine the square footage of the space used for freelance work and the total square footage of the residence. Calculate the percentage of the residence that accounts for your office. Once you have those numbers, you can use that percentage to determine how much of your utility bills, etc., went towards your business.
The bottom line for all freelance writers to remember is that if you received financial compensation for your work from anyone other than an employer, then you are self-employed. Being self-employed is different from full-time employment where the employer pays a portion of your Medicare, etc., for you. When you work for yourself, you’re responsible for giving back to the system yourself.
(Editor’s Note: This post does not constitute accounting or tax advice. If you have a specific tax or accounting question, please consult with a tax specialist.)
At the end of the day, freelance writing is a great way to supplement your full-time job or get your own writing business off and running. However, make sure that your records are organized so that the tax man cometh not for you.
Are you on top of the tax situation?
Image by Ken Teegardin