Life as a freelancer can be pretty laid-back. You set your own schedule, you control your own work, and you have a lot more freedom – most of the time. At tax time, being a freelancer can be daunting if you haven’t kept good records or don’t know what to expect. Filing your taxes can be daunting, especially if you didn’t pay your estimated taxes or you lost important receipts. So before you begin your tax return, make sure you’re well prepared for the process.
Organization is Crucial
Throughout the year, keeping organized records can make filing your taxes as a freelancer much easier. If you can, eliminate the paper and go digital for keeping track of two important tax factors:
- Business income: Because many freelancers alter their income on tax returns, the IRS is especially wary. It’s your responsibility to report all of your income, not just those which you received a Form 1099 for, as those are provided for jobs over $600.
- Business expenses: You can deduct certain business related expenses as long as you have the appropriate documentation, including the cost, the date, the purpose of the expense, and who money was paid to. Some deductible expenses include:
- Business cards, online ads, and other promotional tools
- Loan interest paid or credit card interest for business accounts
- Professional services and legal fees
- Equipment repairs
- Office supplies
- Certain travel expenses
- Business meals and entertainment for clients
As a freelancer, it’s important that you account for your federal withholdings by paying estimated taxes every quarter. The quarters are April 15th, June, September and January of the following year. In doing so, you pay small portions of the required withholdings instead of paying one large lump sum in April when you file your return. You can be charged penalties and assessed fines if you don’t pay your quarterly estimated taxes or file a tax return.
To file estimated taxes, you should use IRS form 1040-ES.
As a freelancer, you should fill out a W-9. Most companies whom you contract for will want you to provide this form which lists your name, address, social security number and a tax identification number if applicable.
Your contractors and clients will provide you with a Form 1099, which is similar to a W-2 that full-time employees receive. It summarizes the amount of income you’ve received from the company, as long as they paid you $600 or more. Even if you don’t receive a 1099, you must still report the income.
You can file Schedule D and Form 8949 to report capital gains and losses, should you have any.