Freelance writers might find that doing their taxes isn’t as simple as it was before they started their own business. Big disclaimer: I am not a tax professional, and nothing here should be construed as giving tax advice. It is merely information and personal experience. See your tax professional for advice about your specific situation. Taxes for freelancers can be more complicated than what most people experience.
Independent contractor or employee?
Many who work at home assume they’re independent contractors, but some would be classified as employees under the IRS rules. The IRS uses a 20-item test sometimes called the “control test” because that’s what the different items examine, to see who has control over what the worker does. If it’s the worker, that leans toward independent contractor status. If it’s the client, that leans toward a status of employee. If you have several clients—if you sell your writing or other work to more than one buyer, then that’s one point for Independent Contractor status. If you determine how and when you do your work, that’s another point. Read the 20 factor test for more information. The IRS can be asked to make a determination, and it’s binding, so many people will want to avoid having IRS involvement.
Schedule C and SE
Self-employed people have to file some forms that employees don’t. One is a Schedule C, statement of profit or loss for a business. It’s a simple form, and if you have your business records, it should only take a couple of minutes to fill out. You should know, however, that a Schedule C is a “red flag” for the IRS, and it does increase your chances of being audited. If you have your own business, though, and writing means you do, then you need to file one. You may also need to file a Schedule SE, self-employment tax, and it, too, is a simple form. Most self-employed people need to pay taxes quarterly, but not everyone does. Check with your tax professional to see what applies to you.
Tax deductions for freelancers
The home office deduction is another red flag—a big one. Some writers decide not to take the deduction even though they can, because they think it’s just not worth the risk. The IRS is cracking down on people who take that deduction, but it may be worth it to you. It’s something to discuss with your tax professional. Office supplies and things you need to do your work are tax deductible as long as they are reasonable and necessary. If you earn $10,000 and spend $5,000 for ink and paper, that might raise an eyebrow or two on the government agent who gets your return. You may be able to deduct travel expenses and part of your costs for entertaining clients.
Record of expenses
It’s always a good idea to save receipts and make note of what they were for. Not only does it help you keep track of your business expenses, but it can make tax time a breeze. The tax forms separate business expenses into different categories, such as travel, utilities, office expense, supplies. Organizing your receipts (or spreadsheet entries) by these categories can save you quite a bit of time when it comes to filling out your tax forms. Even if you use a tax software program or fill out your tax return yourself, it’s a good idea to have an accountant or other tax professional. Their fees are tax deductible, too, so it’s not so much of a bite to do things the right way. Find out what applies to you: what forms, what deductions, and, while it’s good to take every deduction you are allowed, please be honest. It’s just not worth it to be any other way. With all the electronic surveillance that goes on, they know how much money you’re making and what you’re spending it on.