Being self-employed can be great. Potentially, you can set your own hours, not have to answer to someone over your shoulder, and ideally, be doing something you love. However, being a self-employed person or doing any kind of freelance work can become quite tricky during tax time. While there can be certain benefits to being self-employed including being able to deduct business expenses, you may owe the government if you didn’t pay taxes throughout the year on your business income.

photo by: 401(K) 2013

Photo Credit: 401(K) 2013

Self Employment Tax Tips

Running your own business takes a lot of organization, and you need to be on top of things. This is especially important when it comes to keeping your books straight and filing your taxes. Here are some tips for filing taxes as a freelancer:

Keep Track of Your Income

Keep track of your income throughout the year. If you earned $600 or more from any of the sources, they file a 1099 with the IRS, which means you should have received this form by the end of January. But you’ll still need to report any additional sources of income as well. Don’t count on these 1099s at the end of the year to know what you earned. You should have a full understanding of what you are earning to know how you are spending your time, making an accurate budget, and of course, to efficiently deal with your taxes. Keep track of when you were paid for each job. If you completed a job in December of last year, but you didn’t receive payment until January, that particular job does not count for the year and you will file that with this year’s taxes. You can use Excel to create a document that clearly shows what you earned, who was the company that paid you, and when you received this payment.

If you haven’t done such a good job of keeping track of your income this year, there are still a few options. Go through your bank account records to note deposits made. This could help you trace your steps a bit. You can also go through your online or paper calendars if you kept track of when assignments were due or when you had a work-related appointment. If you haven’t deleted them, go through past e-mails which may jog your memory as well. An e-mail exchange with a client may remind you of that particular job.

Track Your Expenses

Keep track of your business expenses throughout the year. Throughout the year, keep your receipts and a detailed log of everything you are spending money on for your business. If you dropped the ball a bit, you can do some of the suggestions from above. Go through credit card statements, bank statements, business e-mails, and a calendar to jog your memory of any business expenses you may have had during the year.

Here is a list of some of the expenses you may have had throughout the year that could be deductible:

  • Business cards, posters, or banners
  • The cost of your website or online portfolio
  • Business insurance
  • Meals you may have had with clients
  • The cost of gas for work related expenses (such as driving to meet a client or driving to cover a story)
  • If you use your vehicle for work-related issues, you can deduct things such as an oil change, repairs, tolls, parking fees, and more. See How to Deduct Mileage on Your Personal Car.
  • Office supplies such as envelopes, pens, paper, ink, post-its, and so on
  • Computer or camera if it is relevant to your business
  • Computer software relevant to your business
  • Repairs on any of your business related equipment
  • Renting a work space and all of the costs and utilities that go into that
  • Retirement contributions to plans including Solo 401ks and SEP-IRAs.
  • A portion of your rent, mortgage, interest, property tax, insurance (both renters and homeowners) if you work from your home under the Home Office Tax Deduction. See the Tax Consequences of Deducting a Home Office.
  • Health insurance if you are not eligible to take advantage of an employer health insurance plan either through your employers or your spouse’s employers. What is the Self Employed Health Insurance Deduction?

Pay Your Taxes Quarterly

Paying your taxes quarterly opposed to once during tax season can help you stay organized and can lessen the blow of paying the large sum all at once. Also, paying quarterly can reduce your chances of being subjected to penalties for not paying quarterly. Talk to a trusted accountant on whether or not your situation needs quarterly deposits. For more see What Happens If You Don’t Make Estimated Tax Payments?

Helpful Form Guide for Self-employed or Freelancers

If you are filing your business income as a sole proprietor, here are some of the tax forms you should know:

  • W-9: You may have filled out a W9 Form when you signed a contract to work for someone. If so, you provided your social security number, name, and address to your client or employer.
  • 1099: A 1099 is the summary of the money a company paid you if it was more than $600. You should have received this by the end of January. It will be the total amount you earned for the previous year. It will also have the business name which you will need while filing your taxes.
  • 1040: A 1040 is the form you will need to use to file your federal taxes since you’ll have 1099s to report. Since you earned a form for self-employment income, you can’t use forms 1040A or 1040-EZ.
  • Schedule C: Use the Schedule C to report taxes specific to your business. This is the form that you’ll report your income and expenses on.
  • Schedule C-EZ :
    Instead of using a slightly more difficult form, Schedule C, you can use Schedule C-EZ if your situation is a little less in depth. You can use this form instead if you are not deducting the cost of your home or not using depreciation, if you have no inventory (i.e. you are not selling something), and if you have no employees in your business. This form is also used only if your business expenses are less than $5,000.
  • Schedule SE: Use the Schedule SE to Calculate Self Employment Taxes to add to your taxes for the year to cover your Social Security and Medicare taxes.

Filing Your Taxes

If you use TurboTax to file your taxes, you’ll need to use the Deluxe version or higher to report 1099 income.

If you are new to being self-employed or a freelancer, what concerns do you have about filing your taxes this year? What issues are you running into? If you are experienced, what tips would you share? What were some things you had to learn in the beginning?

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Comments to Tips for Filing Your Taxes with Self Employment Income

  1. I’m a volunteer tax preparer. The title regarding self-employment income piqued my interest. My experience with the self-employed is that they are frequently surprised by self-employment taxes owed, in particular that they owe the employer’s share of Social Security and Medicare in addition to the employee’s share. If there is an update to this article, this expense should be highlighted.

    David Ecker

  2. My wife is a homemaker and got few gifts cards last year that are > $600. She filled the W-9 form. But we didn’t get the 1099 form yet. We usually file joint-return. Should this ‘income’ be added with my return in 1040?

    Jim


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