Taxes for Freelancers
Don't let 'em eat you alive
Did you earn your first income from freelancing last year? If so, you're in for a new adventure: calculating your income and Social Security taxes as a self-employed person.
The basic principle of paying freelance taxes is simple: You add up your income, deduct your expenses, and transfer the net profit or loss to Line 12, "Business income (or loss)," on Form 1040.
Unfortunately, what's simple in principle can be complicated in practice. Here are a few guidelines to help you get started:
Are you self-employed?
On Schedule C, you should declare income that comes from freelancing or contract work--not from regular employment. Here's a guide to determining whether you qualify for Schedule C:
Scenario 1: You work 20 hours a week for a newspaper. The company deducts income and Social Security taxes from your paycheck and gives you a W-2 form at the end of the year. This is not freelance work, and Schedule C doesn't come into play. You file your income taxes in the same way you would as an employee of a doughnut shop or an insurance company.
Scenario 2: You work 20 hours a week as a contractor. You aren't considered an employee, the company doesn't deduct taxes from your paycheck, and you receive a Form 1099 at the end of the year. This income does go on your Schedule C, and you may be able to deduct some expenses (depending on whether you work at the company's offices or at home).
Scenario 3: You write at home, submitting articles to magazines or accepting assignments from business clients. You supply your own workspace, computer, etc., and any income statements you receive are on Form 1099. It's clear that you're a freelancer, so you use Schedule C and claim business deductions for your writing expenses.
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