If your primary income comes from freelance writing gigs, you might be confused about how to report your income when preparing your taxes. Here are some things you need to know about freelance taxes and how to report them accurately, while also saving as much as you can on your tax return.
During the year, you should keep records of each payment your receive and the payment method you receive it through. For example, some businesses who you sell your work to may pay you through Paypal or a similar online payment service. If you make enough money, Paypal itself can issue you an income reporting statement. If you have a contract with a particular company, like Crowd Content, you can gather tax forms from that business -- usually a 1099 MISC.
For smaller sources of income, talk to an accountant or use tax preparation software to help you know how best to report it or if you need to report it at all. Your own records will help to cover areas where tax forms don't cover all the bases.
As a freelancer, you don't pay typical employment taxes like Social Security. Your tax amount takes this fact into account. Therefore, if you make above $400, a percentage of that income will be due at tax time (the amount varies each year, depending on the most current tax codes). The percentage may seem high to you, and the reason for this is that you are both employer and employee in your freelance business. In brick-and-mortar jobs where you have a boss, the company you work for shares the burden of employment taxes. When you're self employed, you pay it all.
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To offset the burden of self-employment tax, you will need to apply for specific deductions. The ones that best apply to freelance writers include:
- The earned income tax credit. This credit usually applies to those with children or those who have a moderately low income and are not a dependent of someone else. Usually, you get money back for dependents relying on your income.
- Home office deductions. This is a specific area of the tax code, but you need to make sure that you can justify the deductions. You must have a dedicated space that is used for your work and office supplies that are set aside for work use. You can't deduct home office expenditures that are used mostly for non-work tasks. It is best, therefore, to have a dedicated work computer and printer and to keep home and office work in a separate space to make the most of this deduction.
- Business expenses. It's important to keep records of business expenditures, especially your cell phone (if you use it for writing/connecting with clients) and what you spend on internet and electronics to keep your business afloat. This adjust your net income, which lowers the amount you will be taxed for self-employment.
For help with preparing your taxes, contact an accountant like Johnson & Associates, CPAs, P.S.