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26 Blog Posts and Articles About Freelance Taxes

Deb Ng — Mon, 04 Jan 2010 13:10:59 +0000

So…I’m sitting here thinking about how my quarterly taxes are due in January and probably many of you are having the same experience. Freelance writers don’t pay taxes in the same manner as those who are salaried employees. We have to plan ahead and predict. For freelance veterans, this may all seem routine. However, new freelancers might be confused as to how to pay taxes as a freelancer and estimate taxes if needed. Many don’t even realize they have to put away money from each gig for taxes.

To help, I’ve prepared a list of posts about freelance taxes. Hopefully you’ll find some, if not all, helpful.

From the Freelance Writing Jobs Network:

From Around the Web:

From the IRS: This Guide to Estimated Taxes is very helpful and will tell you if you need to file quarterly estimated taxes and how to go about doing so.
Freelance Tax FAQs at The Anti 9 to 5 Guide – This post is from 2006 but it’s still very helpful.
Taxes and Freelancing: A very useful roundup from About.com Tax Planning.
Freelance Switch included a very useful post about saving for taxes in their series on The Business of Freelancing.
Writing.org’s guide to freelance taxes is simple to understand.
The Writers Technology Companion discusses using Outright, a free online service that simplifies the quarterly tax process.
Freelance Sprout helps you to prepare for freelance taxes all year long.
How Should a Freelancer Prepare for the Tax Season? Timely advice from About.com Freelance Writing.
If your client doesn’t pay you for a job, can you write it off? At About.com Freelance Writing.
Small Business Taxes for Freelance Writers at Artic Llama
Tax Issues for Freelance Writers at About.com Business Finance
Making Sense of Freelance Blogging Taxes at About.com Weblogs
Tax Tips for Freelance Bloggers at About.com Weblogs
Freelance Writers and Estimated Taxes at LoveToKnow
How to Pay Estimated Taxes at About.com Tax Planning

Do you have any questions or tips about freelance taxes that haven’t been addressed here? Let us know!

How to Solve Freelance Tax Problems

Deb Ng — Sun, 03 Jan 2010 15:35:40 +0000

by Thursday Bram

When something goes wrong with an employee’s taxes, her employer is often responsible when everything is said and done. For freelancers, though, no employer is going to take the time to correct errors. That means that you have to take responsibility for making sure that all of your paperwork is in order and, if it isn’t, that you take the right measures to keep the IRS happy.

Contact the IRS

Staying in touch with the IRS can simplify most of the problems a freelancer can face when it comes to taxes. In most situations, such as late filing, the IRS automatically assumes the worst. In the case of a missing return, for instance, the IRS’ standard policy is to create a substitute tax return based on your expected income. The IRS won’t take time to figure any deductions, though — they’ll just charge you will the full tax obligation for the income they think you’ve earned and charge interest and penalties based on that amount. The only alternative is to contact the IRS if, for any reason, they haven’t received your payments or tax return.

The IRS makes it easy to find information and make contact. You can call and ask tax questions Monday through Friday (freelancers should use the toll-free business help line at 800-829-4933). You can also get face-to-face help at local IRS offices.

Talk to Your Clients

More than a few issues with freelancers’ taxes can be traced back to an incorrect Form 1090. If you can get your client to file an amended form with the IRS quickly, you can simplify the situation. If you do not receive an amended form from your client, even after contacting him via certified mail, the IRS can correct it — but will only do so if you can provide evidence (such as a certified letter) that you have attempted to resolve the matter on your own. Getting your client to amend their paperwork is generally a faster solution.

Know Your Rights

As a tax payer, you always have the right to appeal a problem with the IRS. At every step of the IRS’ process for handling tax problems, you can get help, and if it continues to escalate, there organizations meant specifically to help you. If you can’t handle a matter through the normal IRS channels, the Taxpayer Advocate Service may be able to help you with the situation.

Tax Tips for Freelance Writers Part 4: When a Writer Needs to Hire a CPA

Deb Ng — Tue, 15 Dec 2009 12:09:26 +0000

by Thursday Bram

While the standard business advice is that you need to hire a CPA as soon as you go to work for yourself, most freelance writers don’t need to call on a CPA quite that fast. As long as your taxes are fairly straight forward, you can take your 1099s to a tax preparer and get your income tax return completed for less than you would pay a CPA. If you’re willing to put the hours into it, it’s even possible to do your taxes on your own: completing Form 1040 will take some time if you aren’t just working for one employer, but there are both in-depth instructions and software packages available to help you out.

There are certain situations in which hiring a CPA does make sense, though. Most of them can be summed up in one description: your taxes are getting more complicated. Here are a few examples of when hiring a CPA can make your life a lot easier.

Your tax burden is getting out of hand: Depending on what state and local taxes you’re paying, as well as how much you’re earning, it’s easier for a freelancer’s tax burden to take up a larger portion of income than someone working for an employer. Most tax preparers can only help you find the obvious tax deductions, but a CPA can help with an overall plan to reduce your tax burden and keep more money in your pocket.
You choose a new business structure: Some freelance writers find it practical to start an LLC or otherwise change their business structure from a sole proprietorship to something else, especially if their businesses are growing. But while such a move may sometimes reduce the overall amount of taxes you could owe, it increases the paperwork dramatically. You’ll need a professional to help keep it all straight.
You’ve got multiple sources of income: Some writers end up with income from more than just client work. If you’re receiving royalties or selling an ebook, for instance, you may want to work with an accountant, rather than a tax preparer.

If anything about your taxes doesn’t make sense, it’s worth taking the matter to a CPA. While a tax preparer usually only knows the details associated with completing a tax return for someone who has one source of income, a CPA is trained in a variety of fields beyond simply preparing an income tax return. A CPA can often advise you about everything from how buying a house could affect your business’ finances to when it’s a good idea to change your business structure. A CPA can offer you the big picture. Some CPAs will offer a short consulting session, rather than the more expensive option of bringing your taxes in. You may be able to get the benefits of talking to a CPA with committing yourself to something more than your freelancing career needs right now.

Easy to Forget Income Tax Deductions

Deb Ng — Tue, 08 Dec 2009 12:02:32 +0000

by Thursday R. Bram

One of the perks of being a freelance writer is that we don’t have a lot of major expenses when we start up our businesses. When I started freelancing, I already had a computer and an internet connection. Just because we start out with very few expenses doesn’t mean that we can’t take deductions for our business expenses when tax season rolls around. We all know the standard deductions: the home office expense, any computer equipment bought specifically for business use and that sort of thing, but there are a lot of deductions that are easy to forget.

Research Expenses

Any costs you incur while researching an article can be considered business expenses. If you buy a book, drive to an interview or even buy a movie ticket in order to review a film, those expenses are a necessary part of doing business. You can’t use this as a way to write off all your book purchases and other expenses, unfortunately, but as long as you can connect a receipt to a specific project, you have a good chance of being able to deduct it.

You can make use of this opportunity to deduct some travel expenses on occasion. Unless the sole purpose of a trip is to conduct research for a project — no trips to see family or vacations — you can’t write off the whole trip. But if you were to make time for an in-person interview or do some other research that produces an article or another project, you can write off some of the associated expenses. Because the situations can vary, it’s important to talk to a tax preparer to see exactly what you can write off.

Child Care Credit

If you pay for child care so that you can work on freelancing projects, you can qualify for the Child and Dependent Care Credit. There are some requirements: if you’re married, both you and your spouse must earn income. You also have to be able to document the child care. While this option is a credit, rather than a deduction, it’s still overlooked by many freelancers and can make a big difference in your tax burden.

Your Tax Preparer

While you may be able to do your taxes yourself, working with a CPA or another tax preparer can make the process a lot easier. Even better, the amount you pay to your tax preparer for completing the income tax return for your business is also a business expense and may be tax deductible. The same holds true of any other costs you incur in the course of doing business, whether you’re buying a product or paying for a service.

Freelancers and Taxes Part 2: Introduction to Quarterly Taxes

Deb Ng — Tue, 10 Nov 2009 16:10:52 +0000

by Thursday Bram

The biggest difference between doing your taxes as an employee and doing them as a freelancer, at least in the U.S, is figuring out just what to do about quarterly estimated income tax. Since your clients pay you as a contractor, rather than an employee, they do not make sure that the IRS receives your payroll taxes. Instead, you’re responsible for sending in a check every quarter for a fourth of the amount you expect to owe at the end of the year.

Not Every Writer Has To Pay Quarterly Estimated Taxes

In general, it seems like every freelancer should be submitting a tax payment to the IRS every three months, but that isn’t actually the case. If you’re freelancing part-time and working for an employer the rest of the time, you don’t have to make quarterly payments. Instead, by adjusting your payroll taxes with your employer, you can make sure that you’re paying enough to cover your freelancing income as well.

There are other situations in which you may not need to make quarterly as well. If you’re just starting out, you may not reach the threshold for quarterly payments this year: if you expect to owe less than $1,000 in taxes for this year, you are not obligated to make quarterly payments.

Filing Quarterly Estimated Income Taxes

As long as you’ve got your most recent income tax return, getting your quarterly estimated tax payments ready is a fairly simple process. You can view the IRS’ instructions in Publication 505 and download Form 1040-ES (PDF). To sum up the instructions, though, you’ll need to check the total tax and your withholding on your last return. You’ll be paying a quarter of the difference between the two number in every payment. You can either file your paperwork and make your payment through the mail or you can pay online through the Electronic Federal Tax Payment System.

If your income this year will be much higher than last year’s total, you may want to recalculate your quarterly payments based on how much you’re actually earning. There can be penalties if you pay significantly less than your total tax owed for the year through your quarterly payments.

While working with a CPA or tax preparer to get your quarterly payments ready to go is an especially good idea if you’re filing them for the first time, I’d recommend at least checking in with your tax professional. It’s impossible to give universal tax advice — everyone’s situation is different — and the variables that go along quarterly payments can make it important to get help with your specific situation.

Tax Tips for UK Freelancers

Deb Ng — Thu, 05 Nov 2009 13:15:16 +0000

by James Hendicott

Working for yourself is great, isn’t it? You get an open schedule, a nice mixed bag of employers and plenty of creative freedom. Wait, nobody told you about the paperwork? Well, if you’re a casual freelancer with a small income, you might not have to worry too much (see how to pay, and how to calculate payments). If this is the start of something big, though, you’d better get on with registration… here’s a quick lowdown on freelance tax issues to get you started:

How to register with HMRC: So you’ve just received that first fulfilling payment as a freelancer? Well, you probably don’t want to deal with every tiny intricacy of the self-employed tax system right from the start, but there are a few things you simply have to do. First of all, you need to register immediately, as the UK tax authority can be pretty strict on punishing those who don’t. You can do that here, and find the information you’ll need on HMRC’s helpful PDF, here. You’re almost certainly a ‘solo trader’, unless you are part of some kind of writing partnership. If you want to keep hold of your national pension (and other – including to some extent NHS health) benefits, you’ll need to look into National Insurance Contributions, too. The simplest way to do this is by direct debit, which you can set up through this form – the fixed amount is currently £2.40 per week, so it’s certainly not something to be too concerned about. Remember to keep a thorough record of your business-related income and expenditure (with receipts, where possible, even if they’re just PayPal ones), too, as this is vital in calculating your final payments, and will save eons of time should the dreaded audit come along later.

How to pay, and how to calculate payments: The best way of completing your annual tax return is probably online, as it allows you to complete it over time, and gives an additional three months to do so on top of the paper application deadline (online deadlines are the 31^st of January). It also calculates your taxes automatically, and will provide you with complete details on how to pay them. You can find a step-by-step guide here. If your total earnings are less than £5075 (this figure changes year on year), you may be exempt from certain charges altogether, though you’ll still need to register here. You don’t have to worry about registering for VAT unless your turnover exceeds a certain amount for the year (currently £68,000). Further information on all these steps can also be found in PDF form here.

Account keeping and Tax Breaks: Aside from just noting down your income, there’s another side to account keeping for freelance writers. You’re entitled to claim a range of business related expenses against your income, which can include anything from the computer you use to business cards, and even the utility bills for any part of your house that you use for your business, though you’ll need to keep receipts for all of these claims (so claiming on an old computer’s unlikely to make the cut). All of these factors can be added easily to your online tax return, though you should be careful about exactly what you claim, as you could end up with a penalty. A detailed explanation on what can be claimed (and what can’t) can be found here. When it comes to tax breaks, you might benefit from being part of a cohabiting couple, having children or having been out of work for sometime before embarking on your freelance quest. The benefits can be substantial, so that’s always worth checking out, too.

Employing Someone Else: Wow, you are doing well, aren’t you! In truth, most of the time you’re better off sub-contracting work to other writers should it come to that, and letting them deal with their own tax issues. If you do need to become an employer, though, you’ll need to register for PAYE (employee Pay As You Earn), as well as contributing to your employees National Insurance Contributions. As most of us will be in dreamland should we ever reach this level of success, we’ll leave you lucky people to find out more for yourselves, here.

Most of us fall well within the simpler parts of the UK tax system, but should you need to look at things in an altogether more complex way, there are regular open days, and advice is available by phone, too. Fortunately, the government wants you to get your tax right almost as much as you want to avoid being audited, so there’s usually a way to sort out more complex issues. A good place to start is in calling business link on 0845 600 9006 (in England – slightly differing regulations in Wales, Scotland and Northern Ireland mean they have their own numbers, which can be found on page 29 of this PDF). Tax can be a complex world, but being able to hold your head high and say you run your own business is a worthy reward, right? Best of luck.