Are you prepared to meet your tax obligations for freelance writers this year? As an independent contractor, your career as a freelance writer offers a great number of perks, but one of the downsides is having to try to estimate your tax obligations. Do you know which forms to fill out?
Whether you’re just starting out as a freelancer or you’ve been at it a while, know your options. You have to pay self-employment tax, which is basically your Social Security and Medicare that’s withheld from a typical paycheck and noted on W-2 forms. As a freelancer, you may get one or more 1099-MISC (miscellaneous income) miscellaneous income earnings from a number of your clients.
I’ve heard a bit of confusion regarding the perception that you don’t have to claim earnings of less than $600 from any client or job, but you may want to think twice about that. The IRS says all earnings are taxable, regardless of the amount.
Quarterly or Annual?
While you should pay estimated taxes on the quarterly basis (tax form 1040-ES, estimated tax for individuals), it can be difficult to determine your projected earnings for the following year and tuck money away to do that. Some find the need to file a new worksheet for every quarter frustrating and time-consuming. Other people I know prefer to just file annually and pay what’s due at tax time. For filing an annual tax return, you’ll need to complete schedule C or you can file Schedule C-EZ (if you have $5,000 or less and expenses).
To deduct the home office or not?
I know a number of freelance writers who choose not to deduct their office space as a home office deduction because it’s just not worth it, unless you happen to have an entire room, studio, garage space, or whatever for the exclusive use of your business. The space has to be designated for work only (deemed as “regular and exclusive use”), and be the principal location for your business. For more information regarding home office space, check out Publication 587 (Business Use of your Home) on the IRS website.
Watch those deductions
Log online to the IRS website or seek the advice of the CPA when it comes to depreciation, business travel, meals and entertainment, and utility expenses (cell phone, office phone, Internet connections, website services and host fees, etc.). You can deduct certain expenses for business travel, but only 50% of your meal costs when traveling for business.
Be aware of your tax obligations, but at the same time, take all the deductions that you are entitled to. To give you a jump on next year’s taxes, take 15.3% off the top of every payment you receive and tuck it away into a “tax account” or cash in a can so you’ll be better prepared (and less stressed) come next year’s tax time.