The Freelancer's Tax Guide

THE FREELANCER'S TAX GUIDE NAVIGATING THE SELF-EMPLOYED TAX PUZZLE Nothing strikes fear into the heart of a freelancer like the mention of end-of-the-year taxes. It's a difficult puzzle for the self-employed (as if the tax system wasn't complicated enough); and, unless you fit the pieces together perfectly you'll end up paying some hefty fines. Need help? Use this tax guide to get you safely through the season. TAX OBLIGATIONS FOR FREELANCERS Unlike W-2 employees, freelancers have to cover their own payrolI taxes and an additional self-employment tax. Below are some of your potential tax obligations as a freelancer. SELF-EMPLOYMENT TAX INCOME TAX QUARTERLY TAXES An income tax is a tax levied on the Quarterly taxes are the method used to pay tax on income that is not subject to withholding. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. income of individuals or businesses (corporations or legal entities). DO YOU QUALIFY? Your net earnings must be greater than $400 (excluding church employee income). You are a church employee with income greater than $108.28. Almost all freelancers are subject to the self-employment tax if they meet these requirements: HOW MUCH WILL YOU OWE? For both 2010 and 2011, 2010 15.3% any income earned after the first $106,800 is not subject to the social security tax. In 2010, the self-employment tax rate was 15.3%. But in 2011, due to the 2011 Tax Relief Act, the rate will be 13.3%. 2011 13.3% WHY PAY QUARTERLY? If you choose to pay quarterly, there are dates set forth You can pay your taxes either quarterly or monthly. You can also wait and pay all your taxes at the end of the year, if you are prepared to incur some hefty fines and a possible audit. APRIL JUNE SEPT. JAN. 15TH 15TH 15TH 15TH by the IRS that are quarterly payment deadlines. January 15th after the end of your tax year. DO YOU NEED TO PAY? If you expect to owe less than $1,000 in taxes after subtracting your federal income tax withholding from the total amount of tax you expect to owe. If your withholding amounts to 90% of the tax that you owe for For most freelancers the quarterly tax is applicable, but there are certain instances where 2010. 104 1040 1040. you may be exempt from paying quarterly taxes. HOW TO FILE YOUR TAXES You are going to come across some interesting terms when filing your taxes as a freelancer. ASSET GROSS RECEIPTS NVOICE An asset is something of monetary value that is used for your business. Some business assets you own can have their depreciated expense This is the total monetary income recieved as a freelancer before your expenses are subtracted. deducted. EIN NET LOSS & NET PROFIT PROFIT EIN EIN is your employer identification number. Most freelancers will not have to worry about this number, but if you operate as a partnership or had any employees, you will need an EIN. If your business expenses are greater than your 952-0987-123 gross receipts for the year, then you have a net loss. If your gross receipts are greater than your expenses, you have a net profit. LSS EXPENSES 1040 SCHEDULE SCHEDULE C Expenses are costs directly related to-and necessary for-the running of your business. If this is your first year as a freelancer you can deduct Profits and losses from your freelance business are reported on your Schedule C form. start-up costs. TIPS HOW TO FILE ESTIMATING YOUR TAXES Try paying your estimated taxes monthly; you'll find the payments smaller and more manageable. A quick equation to estimate a quarterly tax payment: WHEN APRIL JUNE SEPT. JAN 15тH 15TH 15TH 15TH Once you're enrolled with EFTPS, you can electronically pay your quarterly taxes and never have to worry about a lost check. 1040-ES FROM YOUR MOST RECENT TAX RETURN: FORMS NEEDED Total Tax Withholding Keeping a record of your estimated tax payment will make next year's estimated payments easier. DIVIDED BY WHERE EFTPS MAIL (QUARTERLY) Do not forget to include your self-employment tax in your tax Electronic Federal Tax Payment System May need to be adjusted if you feel your income may decrease or increase. estimate. TIPS HOW TO FILE It may be a good idea to seek the advice of a ČPA who knows in the ins and outs of deductions for freelancers. WHEN APRIL 18TH Remember: you can only declare a net loss 3 out of 5 years as a business before it is considered a hobby. 1040 1040 1040 SCHEDULE SCHEDULE SCHEDULE C-EZ FORMS NEEDED The number one most effective way to get through your taxes as a freelancer is to be organized. Keeping an accurate record will help you get the most out of your deductions and will protect you in case of an audit. WHERE EFTPS MAIL Electronic Federal Tax Payment System FREELANCER AND DEDUCTIONS Some of the greatest advantages to freelancing are the tax deductions you are allowed to take. Here are a few of the lesser known ones. UNPAID INVOICES RESEARCH If you conducted business with a client who decided to disappear without paying the bill, you can write it off as bad debt. You will need to use Going to conferences, buying books, and other research-related expenses for your specific industry are all deductible. PAST DUE the accrual method of accounting; further information is in IRS Publication 535. COFFEE MEETINGS JOB HUNTING WANT ADS Any costs associated with job boards, joining a website to bid on a project, or any expenses If you grabbed a cup of coffee with a client or a partner to discuss a project you can write off half of that expense. It may seem small, but those daily trips add up. associated with looking for new clients are deductible. PAYPAL FEES HIRING ANOTHER FREELANCER 1040 SCHEDULE If you had to pay any credit card transaction fees you can write off those payments as they are a necessary cost of doing business. If you subcontract part of a project to another freelancer you can deduct the expense. Make sure to keep a record of the contract between you and the other freelancer. HOME EXPENSES CELLPHONE Payments towards utilities, insurance, mortgage interest, electricity and internet can all be deductible if you work out of your home. The first telephone line in your home can not be deducted, even if it is used for business. However, any secondary phones are deductible expense. PROFESSIONAL ADVICE SELF-EMPLOYMENT TAX 1040-ES If you sought advice from a professional, such as an accountant or lawyer, you can deduct his/her fees. It may seem slightly counterintuitive, but you can deduct half of your self-employment tax on your income tax. HEALTHCARE CREDIT CARD INTEREST If you purchased a big ticket item for your business on credit, the interest you pay for that equipment is deductible. Medical expenses and health insurance premiums are deductible according to the requirements detailed in IRS Publication 502. FRESHBOOKS Sources: IRS.gov I Freelancefolder.com I Turbotax.com I Freelanceswitch.com painless billing QUARTERLY TAXES * SELF-EMPLOYMENT TAX ANNUAL TAXES S QUARTERLY TAXES PAYMENT DATES RATES QUALIFICATIONS THE FREELANCER'S TAX GUIDE NAVIGATING THE SELF-EMPLOYED TAX PUZZLE Nothing strikes fear into the heart of a freelancer like the mention of end-of-the-year taxes. It's a difficult puzzle for the self-employed (as if the tax system wasn't complicated enough); and, unless you fit the pieces together perfectly you'll end up paying some hefty fines. Need help? Use this tax guide to get you safely through the season. TAX OBLIGATIONS FOR FREELANCERS Unlike W-2 employees, freelancers have to cover their own payrolI taxes and an additional self-employment tax. Below are some of your potential tax obligations as a freelancer. 1 SELF-EMPLOYMENT TAX INCOME TAX QUARTERLY TAXES An income tax is a tax levied on the Quarterly taxes are the method used to pay tax on income that is not subject to withholding. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. income of individuals or businesses (corporations or legal entities). DO YOU QUALIFY? 1 Your net earnings must be greater than $400 (excluding church employee income). You are a church employee with income greater than $108.28. Almost all freelancers are subject to the self-employment tax if they meet these requirements: HOW MUCH WILL YOU OWE? For both 2010 and 2011, 2010 15.3% any income earned after the first $106,800 is not subject to the social security tax. In 2010, the self-employment tax rate was 15.3%. But in 2011, due to the 2011 Tax Relief Act, the rate will be 13.3%. 2011 13.3% WHY PAY QUARTERLY? If you choose to pay quarterly, there are dates set forth You can pay your taxes either quarterly or monthly. You can also wait and pay all your taxes at the end of the year, if you are prepared to incur some hefty fines and a possible audit. APRIL JUNE SEPT. JAN. 15TH 15TH 15TH 15TH by the IRS that are quarterly payment deadlines. January 15th after the end of your tax year. DO YOU NEED TO PAY? If you expect to owe less than $1,000 in taxes after subtracting your federal income tax withholding from the total amount of tax you expect to owe. If your withholding amounts to 90% of the tax that you owe for For most freelancers the quarterly tax is applicable, but there are certain instances where 2010. 104 1040 1040. you may be exempt from paying quarterly taxes. HOW TO FILE YOUR TAXES You are going to come across some interesting terms when filing your taxes as a freelancer. ASSET GROSS RECEIPTS NVOICE An asset is something of monetary value that is used for your business. Some business assets you own can have their depreciated expense This is the total monetary income recieved as a freelancer before your expenses are subtracted. deducted. EIN NET LOSS & NET PROFIT PROFIT EIN EIN is your employer identification number. Most freelancers will not have to worry about this number, but if you operate as a partnership or had any employees, you will need an EIN. If your business expenses are greater than your 952-0987-123 gross receipts for the year, then you have a net loss. If your gross receipts are greater than your expenses, you have a net profit. LSS EXPENSES 1040 SCHEDULE SCHEDULE C Expenses are costs directly related to-and necessary for-the running of your business. If this is your first year as a freelancer you can deduct Profits and losses from your freelance business are reported on your Schedule C form. start-up costs. TIPS HOW TO FILE ESTIMATING YOUR TAXES Try paying your estimated taxes monthly; you'll find the payments smaller and more manageable. A quick equation to estimate a quarterly tax payment: WHEN APRIL JUNE SEPT. JAN 15тH 15TH 15TH 15TH Once you're enrolled with EFTPS, you can electronically pay your quarterly taxes and never have to worry about a lost check. 1040-ES FROM YOUR MOST RECENT TAX RETURN: FORMS NEEDED Total Tax Withholding Keeping a record of your estimated tax payment will make next year's estimated payments easier. DIVIDED BY WHERE EFTPS MAIL (QUARTERLY) Do not forget to include your self-employment tax in your tax Electronic Federal Tax Payment System May need to be adjusted if you feel your income may decrease or increase. estimate. TIPS HOW TO FILE It may be a good idea to seek the advice of a ČPA who knows in the ins and outs of deductions for freelancers. WHEN APRIL 18TH Remember: you can only declare a net loss 3 out of 5 years as a business before it is considered a hobby. 1040 1040 1040 SCHEDULE SCHEDULE SCHEDULE C-EZ FORMS NEEDED The number one most effective way to get through your taxes as a freelancer is to be organized. Keeping an accurate record will help you get the most out of your deductions and will protect you in case of an audit. WHERE EFTPS MAIL Electronic Federal Tax Payment System FREELANCER AND DEDUCTIONS Some of the greatest advantages to freelancing are the tax deductions you are allowed to take. Here are a few of the lesser known ones. UNPAID INVOICES RESEARCH If you conducted business with a client who decided to disappear without paying the bill, you can write it off as bad debt. You will need to use Going to conferences, buying books, and other research-related expenses for your specific industry are all deductible. PAST DUE the accrual method of accounting; further information is in IRS Publication 535. COFFEE MEETINGS JOB HUNTING WANT ADS Any costs associated with job boards, joining a website to bid on a project, or any expenses If you grabbed a cup of coffee with a client or a partner to discuss a project you can write off half of that expense. It may seem small, but those daily trips add up. associated with looking for new clients are deductible. PAYPAL FEES HIRING ANOTHER FREELANCER 1040 SCHEDULE If you had to pay any credit card transaction fees you can write off those payments as they are a necessary cost of doing business. If you subcontract part of a project to another freelancer you can deduct the expense. Make sure to keep a record of the contract between you and the other freelancer. HOME EXPENSES CELLPHONE Payments towards utilities, insurance, mortgage interest, electricity and internet can all be deductible if you work out of your home. The first telephone line in your home can not be deducted, even if it is used for business. However, any secondary phones are deductible expense. PROFESSIONAL ADVICE SELF-EMPLOYMENT TAX 1040-ES If you sought advice from a professional, such as an accountant or lawyer, you can deduct his/her fees. It may seem slightly counterintuitive, but you can deduct half of your self-employment tax on your income tax. HEALTHCARE CREDIT CARD INTEREST If you purchased a big ticket item for your business on credit, the interest you pay for that equipment is deductible. Medical expenses and health insurance premiums are deductible according to the requirements detailed in IRS Publication 502. FRESHBOOKS Sources: IRS.gov I Freelancefolder.com I Turbotax.com I Freelanceswitch.com painless billing QUARTERLY TAXES * SELF-EMPLOYMENT TAX ANNUAL TAXES S QUARTERLY TAXES PAYMENT DATES RATES QUALIFICATIONS THE FREELANCER'S TAX GUIDE NAVIGATING THE SELF-EMPLOYED TAX PUZZLE Nothing strikes fear into the heart of a freelancer like the mention of end-of-the-year taxes. It's a difficult puzzle for the self-employed (as if the tax system wasn't complicated enough); and, unless you fit the pieces together perfectly you'll end up paying some hefty fines. Need help? Use this tax guide to get you safely through the season. TAX OBLIGATIONS FOR FREELANCERS Unlike W-2 employees, freelancers have to cover their own payrolI taxes and an additional self-employment tax. Below are some of your potential tax obligations as a freelancer. 1 SELF-EMPLOYMENT TAX INCOME TAX QUARTERLY TAXES An income tax is a tax levied on the Quarterly taxes are the method used to pay tax on income that is not subject to withholding. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. income of individuals or businesses (corporations or legal entities). DO YOU QUALIFY? 1 Your net earnings must be greater than $400 (excluding church employee income). You are a church employee with income greater than $108.28. Almost all freelancers are subject to the self-employment tax if they meet these requirements: HOW MUCH WILL YOU OWE? For both 2010 and 2011, 2010 15.3% any income earned after the first $106,800 is not subject to the social security tax. In 2010, the self-employment tax rate was 15.3%. But in 2011, due to the 2011 Tax Relief Act, the rate will be 13.3%. 2011 13.3% WHY PAY QUARTERLY? If you choose to pay quarterly, there are dates set forth You can pay your taxes either quarterly or monthly. You can also wait and pay all your taxes at the end of the year, if you are prepared to incur some hefty fines and a possible audit. APRIL JUNE SEPT. JAN. 15TH 15TH 15TH 15TH by the IRS that are quarterly payment deadlines. January 15th after the end of your tax year. DO YOU NEED TO PAY? If you expect to owe less than $1,000 in taxes after subtracting your federal income tax withholding from the total amount of tax you expect to owe. If your withholding amounts to 90% of the tax that you owe for For most freelancers the quarterly tax is applicable, but there are certain instances where 2010. 104 1040 1040. you may be exempt from paying quarterly taxes. HOW TO FILE YOUR TAXES You are going to come across some interesting terms when filing your taxes as a freelancer. ASSET GROSS RECEIPTS NVOICE An asset is something of monetary value that is used for your business. Some business assets you own can have their depreciated expense This is the total monetary income recieved as a freelancer before your expenses are subtracted. deducted. EIN NET LOSS & NET PROFIT PROFIT EIN EIN is your employer identification number. Most freelancers will not have to worry about this number, but if you operate as a partnership or had any employees, you will need an EIN. If your business expenses are greater than your 952-0987-123 gross receipts for the year, then you have a net loss. If your gross receipts are greater than your expenses, you have a net profit. LSS EXPENSES 1040 SCHEDULE SCHEDULE C Expenses are costs directly related to-and necessary for-the running of your business. If this is your first year as a freelancer you can deduct Profits and losses from your freelance business are reported on your Schedule C form. start-up costs. TIPS HOW TO FILE ESTIMATING YOUR TAXES Try paying your estimated taxes monthly; you'll find the payments smaller and more manageable. A quick equation to estimate a quarterly tax payment: WHEN APRIL JUNE SEPT. JAN 15тH 15TH 15TH 15TH Once you're enrolled with EFTPS, you can electronically pay your quarterly taxes and never have to worry about a lost check. 1040-ES FROM YOUR MOST RECENT TAX RETURN: FORMS NEEDED Total Tax Withholding Keeping a record of your estimated tax payment will make next year's estimated payments easier. DIVIDED BY WHERE EFTPS MAIL (QUARTERLY) Do not forget to include your self-employment tax in your tax Electronic Federal Tax Payment System May need to be adjusted if you feel your income may decrease or increase. estimate. TIPS HOW TO FILE It may be a good idea to seek the advice of a ČPA who knows in the ins and outs of deductions for freelancers. WHEN APRIL 18TH Remember: you can only declare a net loss 3 out of 5 years as a business before it is considered a hobby. 1040 1040 1040 SCHEDULE SCHEDULE SCHEDULE C-EZ FORMS NEEDED The number one most effective way to get through your taxes as a freelancer is to be organized. Keeping an accurate record will help you get the most out of your deductions and will protect you in case of an audit. WHERE EFTPS MAIL Electronic Federal Tax Payment System FREELANCER AND DEDUCTIONS Some of the greatest advantages to freelancing are the tax deductions you are allowed to take. Here are a few of the lesser known ones. UNPAID INVOICES RESEARCH If you conducted business with a client who decided to disappear without paying the bill, you can write it off as bad debt. You will need to use Going to conferences, buying books, and other research-related expenses for your specific industry are all deductible. PAST DUE the accrual method of accounting; further information is in IRS Publication 535. COFFEE MEETINGS JOB HUNTING WANT ADS Any costs associated with job boards, joining a website to bid on a project, or any expenses If you grabbed a cup of coffee with a client or a partner to discuss a project you can write off half of that expense. It may seem small, but those daily trips add up. associated with looking for new clients are deductible. PAYPAL FEES HIRING ANOTHER FREELANCER 1040 SCHEDULE If you had to pay any credit card transaction fees you can write off those payments as they are a necessary cost of doing business. If you subcontract part of a project to another freelancer you can deduct the expense. Make sure to keep a record of the contract between you and the other freelancer. HOME EXPENSES CELLPHONE Payments towards utilities, insurance, mortgage interest, electricity and internet can all be deductible if you work out of your home. The first telephone line in your home can not be deducted, even if it is used for business. However, any secondary phones are deductible expense. PROFESSIONAL ADVICE SELF-EMPLOYMENT TAX 1040-ES If you sought advice from a professional, such as an accountant or lawyer, you can deduct his/her fees. It may seem slightly counterintuitive, but you can deduct half of your self-employment tax on your income tax. HEALTHCARE CREDIT CARD INTEREST If you purchased a big ticket item for your business on credit, the interest you pay for that equipment is deductible. Medical expenses and health insurance premiums are deductible according to the requirements detailed in IRS Publication 502. FRESHBOOKS Sources: IRS.gov I Freelancefolder.com I Turbotax.com I Freelanceswitch.com painless billing QUARTERLY TAXES * SELF-EMPLOYMENT TAX ANNUAL TAXES S QUARTERLY TAXES PAYMENT DATES RATES QUALIFICATIONS THE FREELANCER'S TAX GUIDE NAVIGATING THE SELF-EMPLOYED TAX PUZZLE Nothing strikes fear into the heart of a freelancer like the mention of end-of-the-year taxes. It's a difficult puzzle for the self-employed (as if the tax system wasn't complicated enough); and, unless you fit the pieces together perfectly you'll end up paying some hefty fines. Need help? Use this tax guide to get you safely through the season. TAX OBLIGATIONS FOR FREELANCERS Unlike W-2 employees, freelancers have to cover their own payrolI taxes and an additional self-employment tax. Below are some of your potential tax obligations as a freelancer. 1 SELF-EMPLOYMENT TAX INCOME TAX QUARTERLY TAXES An income tax is a tax levied on the Quarterly taxes are the method used to pay tax on income that is not subject to withholding. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. income of individuals or businesses (corporations or legal entities). DO YOU QUALIFY? 1 Your net earnings must be greater than $400 (excluding church employee income). You are a church employee with income greater than $108.28. Almost all freelancers are subject to the self-employment tax if they meet these requirements: HOW MUCH WILL YOU OWE? For both 2010 and 2011, 2010 15.3% any income earned after the first $106,800 is not subject to the social security tax. In 2010, the self-employment tax rate was 15.3%. But in 2011, due to the 2011 Tax Relief Act, the rate will be 13.3%. 2011 13.3% WHY PAY QUARTERLY? If you choose to pay quarterly, there are dates set forth You can pay your taxes either quarterly or monthly. You can also wait and pay all your taxes at the end of the year, if you are prepared to incur some hefty fines and a possible audit. APRIL JUNE SEPT. JAN. 15TH 15TH 15TH 15TH by the IRS that are quarterly payment deadlines. January 15th after the end of your tax year. DO YOU NEED TO PAY? If you expect to owe less than $1,000 in taxes after subtracting your federal income tax withholding from the total amount of tax you expect to owe. If your withholding amounts to 90% of the tax that you owe for For most freelancers the quarterly tax is applicable, but there are certain instances where 2010. 104 1040 1040. you may be exempt from paying quarterly taxes. HOW TO FILE YOUR TAXES You are going to come across some interesting terms when filing your taxes as a freelancer. ASSET GROSS RECEIPTS NVOICE An asset is something of monetary value that is used for your business. Some business assets you own can have their depreciated expense This is the total monetary income recieved as a freelancer before your expenses are subtracted. deducted. EIN NET LOSS & NET PROFIT PROFIT EIN EIN is your employer identification number. Most freelancers will not have to worry about this number, but if you operate as a partnership or had any employees, you will need an EIN. If your business expenses are greater than your 952-0987-123 gross receipts for the year, then you have a net loss. If your gross receipts are greater than your expenses, you have a net profit. LSS EXPENSES 1040 SCHEDULE SCHEDULE C Expenses are costs directly related to-and necessary for-the running of your business. If this is your first year as a freelancer you can deduct Profits and losses from your freelance business are reported on your Schedule C form. start-up costs. TIPS HOW TO FILE ESTIMATING YOUR TAXES Try paying your estimated taxes monthly; you'll find the payments smaller and more manageable. A quick equation to estimate a quarterly tax payment: WHEN APRIL JUNE SEPT. JAN 15тH 15TH 15TH 15TH Once you're enrolled with EFTPS, you can electronically pay your quarterly taxes and never have to worry about a lost check. 1040-ES FROM YOUR MOST RECENT TAX RETURN: FORMS NEEDED Total Tax Withholding Keeping a record of your estimated tax payment will make next year's estimated payments easier. DIVIDED BY WHERE EFTPS MAIL (QUARTERLY) Do not forget to include your self-employment tax in your tax Electronic Federal Tax Payment System May need to be adjusted if you feel your income may decrease or increase. estimate. TIPS HOW TO FILE It may be a good idea to seek the advice of a ČPA who knows in the ins and outs of deductions for freelancers. WHEN APRIL 18TH Remember: you can only declare a net loss 3 out of 5 years as a business before it is considered a hobby. 1040 1040 1040 SCHEDULE SCHEDULE SCHEDULE C-EZ FORMS NEEDED The number one most effective way to get through your taxes as a freelancer is to be organized. Keeping an accurate record will help you get the most out of your deductions and will protect you in case of an audit. WHERE EFTPS MAIL Electronic Federal Tax Payment System FREELANCER AND DEDUCTIONS Some of the greatest advantages to freelancing are the tax deductions you are allowed to take. Here are a few of the lesser known ones. UNPAID INVOICES RESEARCH If you conducted business with a client who decided to disappear without paying the bill, you can write it off as bad debt. You will need to use Going to conferences, buying books, and other research-related expenses for your specific industry are all deductible. PAST DUE the accrual method of accounting; further information is in IRS Publication 535. COFFEE MEETINGS JOB HUNTING WANT ADS Any costs associated with job boards, joining a website to bid on a project, or any expenses If you grabbed a cup of coffee with a client or a partner to discuss a project you can write off half of that expense. It may seem small, but those daily trips add up. associated with looking for new clients are deductible. PAYPAL FEES HIRING ANOTHER FREELANCER 1040 SCHEDULE If you had to pay any credit card transaction fees you can write off those payments as they are a necessary cost of doing business. If you subcontract part of a project to another freelancer you can deduct the expense. Make sure to keep a record of the contract between you and the other freelancer. HOME EXPENSES CELLPHONE Payments towards utilities, insurance, mortgage interest, electricity and internet can all be deductible if you work out of your home. The first telephone line in your home can not be deducted, even if it is used for business. However, any secondary phones are deductible expense. PROFESSIONAL ADVICE SELF-EMPLOYMENT TAX 1040-ES If you sought advice from a professional, such as an accountant or lawyer, you can deduct his/her fees. It may seem slightly counterintuitive, but you can deduct half of your self-employment tax on your income tax. HEALTHCARE CREDIT CARD INTEREST If you purchased a big ticket item for your business on credit, the interest you pay for that equipment is deductible. Medical expenses and health insurance premiums are deductible according to the requirements detailed in IRS Publication 502. FRESHBOOKS Sources: IRS.gov I Freelancefolder.com I Turbotax.com I Freelanceswitch.com painless billing QUARTERLY TAXES * SELF-EMPLOYMENT TAX ANNUAL TAXES S QUARTERLY TAXES PAYMENT DATES RATES QUALIFICATIONS THE FREELANCER'S TAX GUIDE NAVIGATING THE SELF-EMPLOYED TAX PUZZLE Nothing strikes fear into the heart of a freelancer like the mention of end-of-the-year taxes. It's a difficult puzzle for the self-employed (as if the tax system wasn't complicated enough); and, unless you fit the pieces together perfectly you'll end up paying some hefty fines. Need help? Use this tax guide to get you safely through the season. TAX OBLIGATIONS FOR FREELANCERS Unlike W-2 employees, freelancers have to cover their own payrolI taxes and an additional self-employment tax. Below are some of your potential tax obligations as a freelancer. 1 SELF-EMPLOYMENT TAX INCOME TAX QUARTERLY TAXES An income tax is a tax levied on the Quarterly taxes are the method used to pay tax on income that is not subject to withholding. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. income of individuals or businesses (corporations or legal entities). DO YOU QUALIFY? 1 Your net earnings must be greater than $400 (excluding church employee income). You are a church employee with income greater than $108.28. Almost all freelancers are subject to the self-employment tax if they meet these requirements: HOW MUCH WILL YOU OWE? For both 2010 and 2011, 2010 15.3% any income earned after the first $106,800 is not subject to the social security tax. In 2010, the self-employment tax rate was 15.3%. But in 2011, due to the 2011 Tax Relief Act, the rate will be 13.3%. 2011 13.3% WHY PAY QUARTERLY? If you choose to pay quarterly, there are dates set forth You can pay your taxes either quarterly or monthly. You can also wait and pay all your taxes at the end of the year, if you are prepared to incur some hefty fines and a possible audit. APRIL JUNE SEPT. JAN. 15TH 15TH 15TH 15TH by the IRS that are quarterly payment deadlines. January 15th after the end of your tax year. DO YOU NEED TO PAY? If you expect to owe less than $1,000 in taxes after subtracting your federal income tax withholding from the total amount of tax you expect to owe. If your withholding amounts to 90% of the tax that you owe for For most freelancers the quarterly tax is applicable, but there are certain instances where 2010. 104 1040 1040. you may be exempt from paying quarterly taxes. HOW TO FILE YOUR TAXES You are going to come across some interesting terms when filing your taxes as a freelancer. ASSET GROSS RECEIPTS NVOICE An asset is something of monetary value that is used for your business. Some business assets you own can have their depreciated expense This is the total monetary income recieved as a freelancer before your expenses are subtracted. deducted. EIN NET LOSS & NET PROFIT PROFIT EIN EIN is your employer identification number. Most freelancers will not have to worry about this number, but if you operate as a partnership or had any employees, you will need an EIN. If your business expenses are greater than your 952-0987-123 gross receipts for the year, then you have a net loss. If your gross receipts are greater than your expenses, you have a net profit. LSS EXPENSES 1040 SCHEDULE SCHEDULE C Expenses are costs directly related to-and necessary for-the running of your business. If this is your first year as a freelancer you can deduct Profits and losses from your freelance business are reported on your Schedule C form. start-up costs. TIPS HOW TO FILE ESTIMATING YOUR TAXES Try paying your estimated taxes monthly; you'll find the payments smaller and more manageable. A quick equation to estimate a quarterly tax payment: WHEN APRIL JUNE SEPT. JAN 15тH 15TH 15TH 15TH Once you're enrolled with EFTPS, you can electronically pay your quarterly taxes and never have to worry about a lost check. 1040-ES FROM YOUR MOST RECENT TAX RETURN: FORMS NEEDED Total Tax Withholding Keeping a record of your estimated tax payment will make next year's estimated payments easier. DIVIDED BY WHERE EFTPS MAIL (QUARTERLY) Do not forget to include your self-employment tax in your tax Electronic Federal Tax Payment System May need to be adjusted if you feel your income may decrease or increase. estimate. TIPS HOW TO FILE It may be a good idea to seek the advice of a ČPA who knows in the ins and outs of deductions for freelancers. WHEN APRIL 18TH Remember: you can only declare a net loss 3 out of 5 years as a business before it is considered a hobby. 1040 1040 1040 SCHEDULE SCHEDULE SCHEDULE C-EZ FORMS NEEDED The number one most effective way to get through your taxes as a freelancer is to be organized. Keeping an accurate record will help you get the most out of your deductions and will protect you in case of an audit. WHERE EFTPS MAIL Electronic Federal Tax Payment System FREELANCER AND DEDUCTIONS Some of the greatest advantages to freelancing are the tax deductions you are allowed to take. Here are a few of the lesser known ones. UNPAID INVOICES RESEARCH If you conducted business with a client who decided to disappear without paying the bill, you can write it off as bad debt. You will need to use Going to conferences, buying books, and other research-related expenses for your specific industry are all deductible. PAST DUE the accrual method of accounting; further information is in IRS Publication 535. COFFEE MEETINGS JOB HUNTING WANT ADS Any costs associated with job boards, joining a website to bid on a project, or any expenses If you grabbed a cup of coffee with a client or a partner to discuss a project you can write off half of that expense. It may seem small, but those daily trips add up. associated with looking for new clients are deductible. PAYPAL FEES HIRING ANOTHER FREELANCER 1040 SCHEDULE If you had to pay any credit card transaction fees you can write off those payments as they are a necessary cost of doing business. If you subcontract part of a project to another freelancer you can deduct the expense. Make sure to keep a record of the contract between you and the other freelancer. HOME EXPENSES CELLPHONE Payments towards utilities, insurance, mortgage interest, electricity and internet can all be deductible if you work out of your home. The first telephone line in your home can not be deducted, even if it is used for business. However, any secondary phones are deductible expense. PROFESSIONAL ADVICE SELF-EMPLOYMENT TAX 1040-ES If you sought advice from a professional, such as an accountant or lawyer, you can deduct his/her fees. It may seem slightly counterintuitive, but you can deduct half of your self-employment tax on your income tax. HEALTHCARE CREDIT CARD INTEREST If you purchased a big ticket item for your business on credit, the interest you pay for that equipment is deductible. Medical expenses and health insurance premiums are deductible according to the requirements detailed in IRS Publication 502. FRESHBOOKS Sources: IRS.gov I Freelancefolder.com I Turbotax.com I Freelanceswitch.com painless billing QUARTERLY TAXES * SELF-EMPLOYMENT TAX ANNUAL TAXES S QUARTERLY TAXES PAYMENT DATES RATES QUALIFICATIONS THE FREELANCER'S TAX GUIDE NAVIGATING THE SELF-EMPLOYED TAX PUZZLE Nothing strikes fear into the heart of a freelancer like the mention of end-of-the-year taxes. It's a difficult puzzle for the self-employed (as if the tax system wasn't complicated enough); and, unless you fit the pieces together perfectly you'll end up paying some hefty fines. Need help? Use this tax guide to get you safely through the season. TAX OBLIGATIONS FOR FREELANCERS Unlike W-2 employees, freelancers have to cover their own payrolI taxes and an additional self-employment tax. Below are some of your potential tax obligations as a freelancer. 1 SELF-EMPLOYMENT TAX INCOME TAX QUARTERLY TAXES An income tax is a tax levied on the Quarterly taxes are the method used to pay tax on income that is not subject to withholding. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. income of individuals or businesses (corporations or legal entities). DO YOU QUALIFY? 1 Your net earnings must be greater than $400 (excluding church employee income). You are a church employee with income greater than $108.28. Almost all freelancers are subject to the self-employment tax if they meet these requirements: HOW MUCH WILL YOU OWE? For both 2010 and 2011, 2010 15.3% any income earned after the first $106,800 is not subject to the social security tax. In 2010, the self-employment tax rate was 15.3%. But in 2011, due to the 2011 Tax Relief Act, the rate will be 13.3%. 2011 13.3% WHY PAY QUARTERLY? If you choose to pay quarterly, there are dates set forth You can pay your taxes either quarterly or monthly. You can also wait and pay all your taxes at the end of the year, if you are prepared to incur some hefty fines and a possible audit. APRIL JUNE SEPT. JAN. 15TH 15TH 15TH 15TH by the IRS that are quarterly payment deadlines. January 15th after the end of your tax year. DO YOU NEED TO PAY? If you expect to owe less than $1,000 in taxes after subtracting your federal income tax withholding from the total amount of tax you expect to owe. If your withholding amounts to 90% of the tax that you owe for For most freelancers the quarterly tax is applicable, but there are certain instances where 2010. 104 1040 1040. you may be exempt from paying quarterly taxes. HOW TO FILE YOUR TAXES You are going to come across some interesting terms when filing your taxes as a freelancer. ASSET GROSS RECEIPTS NVOICE An asset is something of monetary value that is used for your business. Some business assets you own can have their depreciated expense This is the total monetary income recieved as a freelancer before your expenses are subtracted. deducted. EIN NET LOSS & NET PROFIT PROFIT EIN EIN is your employer identification number. Most freelancers will not have to worry about this number, but if you operate as a partnership or had any employees, you will need an EIN. If your business expenses are greater than your 952-0987-123 gross receipts for the year, then you have a net loss. If your gross receipts are greater than your expenses, you have a net profit. LSS EXPENSES 1040 SCHEDULE SCHEDULE C Expenses are costs directly related to-and necessary for-the running of your business. If this is your first year as a freelancer you can deduct Profits and losses from your freelance business are reported on your Schedule C form. start-up costs. TIPS HOW TO FILE ESTIMATING YOUR TAXES Try paying your estimated taxes monthly; you'll find the payments smaller and more manageable. A quick equation to estimate a quarterly tax payment: WHEN APRIL JUNE SEPT. JAN 15тH 15TH 15TH 15TH Once you're enrolled with EFTPS, you can electronically pay your quarterly taxes and never have to worry about a lost check. 1040-ES FROM YOUR MOST RECENT TAX RETURN: FORMS NEEDED Total Tax Withholding Keeping a record of your estimated tax payment will make next year's estimated payments easier. DIVIDED BY WHERE EFTPS MAIL (QUARTERLY) Do not forget to include your self-employment tax in your tax Electronic Federal Tax Payment System May need to be adjusted if you feel your income may decrease or increase. estimate. TIPS HOW TO FILE It may be a good idea to seek the advice of a ČPA who knows in the ins and outs of deductions for freelancers. WHEN APRIL 18TH Remember: you can only declare a net loss 3 out of 5 years as a business before it is considered a hobby. 1040 1040 1040 SCHEDULE SCHEDULE SCHEDULE C-EZ FORMS NEEDED The number one most effective way to get through your taxes as a freelancer is to be organized. Keeping an accurate record will help you get the most out of your deductions and will protect you in case of an audit. WHERE EFTPS MAIL Electronic Federal Tax Payment System FREELANCER AND DEDUCTIONS Some of the greatest advantages to freelancing are the tax deductions you are allowed to take. Here are a few of the lesser known ones. UNPAID INVOICES RESEARCH If you conducted business with a client who decided to disappear without paying the bill, you can write it off as bad debt. You will need to use Going to conferences, buying books, and other research-related expenses for your specific industry are all deductible. PAST DUE the accrual method of accounting; further information is in IRS Publication 535. COFFEE MEETINGS JOB HUNTING WANT ADS Any costs associated with job boards, joining a website to bid on a project, or any expenses If you grabbed a cup of coffee with a client or a partner to discuss a project you can write off half of that expense. It may seem small, but those daily trips add up. associated with looking for new clients are deductible. PAYPAL FEES HIRING ANOTHER FREELANCER 1040 SCHEDULE If you had to pay any credit card transaction fees you can write off those payments as they are a necessary cost of doing business. If you subcontract part of a project to another freelancer you can deduct the expense. Make sure to keep a record of the contract between you and the other freelancer. HOME EXPENSES CELLPHONE Payments towards utilities, insurance, mortgage interest, electricity and internet can all be deductible if you work out of your home. The first telephone line in your home can not be deducted, even if it is used for business. However, any secondary phones are deductible expense. PROFESSIONAL ADVICE SELF-EMPLOYMENT TAX 1040-ES If you sought advice from a professional, such as an accountant or lawyer, you can deduct his/her fees. It may seem slightly counterintuitive, but you can deduct half of your self-employment tax on your income tax. HEALTHCARE CREDIT CARD INTEREST If you purchased a big ticket item for your business on credit, the interest you pay for that equipment is deductible. Medical expenses and health insurance premiums are deductible according to the requirements detailed in IRS Publication 502. FRESHBOOKS Sources: IRS.gov I Freelancefolder.com I Turbotax.com I Freelanceswitch.com painless billing QUARTERLY TAXES * SELF-EMPLOYMENT TAX ANNUAL TAXES S QUARTERLY TAXES PAYMENT DATES RATES QUALIFICATIONS