Freelancing and Tax Time
Freelancing has grown more popular now than it ever has before, and for good reason too! For one, you get to tell your boss to shove it since most freelancers govern themselves. You can also kiss those stiff, uncomfortable work clothes goodbye; after all, why would you need anything more than your pajamas when working from the comfort of your home office? However, as glorious as freelancing might sound, there are several downsides to it as well. One of the primary disadvantages is actually financially related—taxes!
With a normal 9-to-5 day job, paying taxes was relatively simple, with “relatively” being the key word. However, being a freelancer means you are responsible for all necessary expenses, incoming revenue, and of course all the tax stipulations associated with your freelancing jobs. Now keep in mind that a consultation with a tax professional is the most ideal solution, but for those with a DIY mentality, here are a few pointers.
First and foremost, keep you’re receipts! While these flimsy little paper slims are easy to forget about and throw away, they actually become quite important to freelancers when tax time rolls around. These receipts tell the IRS, “Hey, I bought this!” Many expenses are actually tax-deductible too. Things like the 1-terabyte computer you bought at Best Buy, or that health insurance you got from Health Net
, and even common printer paper can all be considered tax-deductible if purchased for the maintaining and/or advancement of your freelancing business.
Moreover, as a freelancer you will probably encounter several situations in which you need to meet a client (or potential client) for lunch in order to discuss a business proposal. Well guess what? The expenses you incur when paying for that mean are considered tax-deductible. In most cases though, the entire bill cannot be deducted, but generally up to half of the bill can. Aside from meals, utilities can be written off of your taxes as well, depending on the situation. Let’s say, for instance, that you need to establish a separate land line to communicate with clients. That monthly bill can likely be deducted since it is a business expense.
As a freelancer, you will also encounter expenses associated with your lifestyle. These include various types of insurance, contributions to an IRA or other investment account, and so on and so forth. In most cases, these expenditures can be deducted in part on your taxes. What you can and cannot deduct largely depends on the circumstances surrounding it, which is why it is important to seek out the assistance of a tax professional.
Just the mere mention of the word “taxes” is enough to send shivers down the spine of a freelancer, but if you break it down, organize, and take it step-by-step, then you just might find that taxes are not as daunting as they seem. One form you, as a freelancer, will need to familiarize yourself with is the 1099 form. This is the form generally used by freelancers to report any income equivalent to or beyond $600.00.