5 Tax Tips for Freelancers and Independent Contractors
If you’re a freelancer or an independent contractor, you’re used to doing a lot on your own. But while most people can handle the responsibilities of being president, owner and CEO of You, Inc., taxes for the “gig economy” can test even the brightest of the self-employed.
That’s because tax practices for freelancers and independent contractors are different – and more difficult – than they are for most people who head off to the same employer every morning. There are different forms and different deductions, and you have to pay even more attention to the calendar than everyone else.
Whether you’re a freelance writer or selling cake toppers on Etsy as a side job, here’s a look at a few tax tips that will help you make the most of your employment situation.
Tax Tips for Freelancers and Independent Contractors
1. Hunt Down Your 1099s: It’s a small but simple thing – make sure each of your employers has sent you a 1099-Misc. It’s easy to keep track of 1099s if you’re a part-time freelancer that has just one or two gigs. But if you have gaggle of clients, have a quick checklist of who has and hasn’t sent you the proper forms so you don’t file without all the proper info. In any given year, you should receive a 1099 by early February, so anytime past that is when you should start making calls. As a note: Clients only need to give you a 1099 if you’ve earned more than $600 from them.
2. Don’t Spend It All: When you work a “normal” job that provides a W-2, you don’t really have to think about taxes that much – they’re automatically deducted from your paycheck. But if you’re a freelancer or independent contractor, and you’re estimated to owe more than $1,000 in a given year, the onus for paying taxes is on you. Make sure to “withhold” enough from yourself every three months so you can pay your estimated taxes each quarter.
3. Record EVERYTHING: If you’re an independent contractor or freelancer, it literally pays to be meticulous with your receipts and record keeping. That’s because there are numerous tax deductions available to you, from travel to equipment to using your home as an office. But if you guess or estimate, fail to have all your proper receipts and only keep up with recording potentially deductible expenses every few months, you’re increasing your chances of making a critical mistake that could result in an audit. Logging expenses as soon as you can, and organizing them via tax software, can help you stay ahead throughout the year.
4. An Easier “Schedule”? If you operated a business or practiced a profession as a sole proprietor, you’ll typically have to report income or loss on Schedule C (Form 1040). However, there’s an easier form called Schedule C-EZ that applies if you meet certain criteria, including having business expenses of $5,000 or less, not recording a net loss from your business and having no employees during the year. The full list of requirements can be found at IRS.gov – just look for the link under “Current Revision,” which will link you to the form for the appropriate tax year.
5. Don’t Do It Yourself: Freelancers and independent contractors are … well, as independent as they come. But the tax hurdles for the self-employed are far more numerous than for typical 9-to-5ers – and the risk of potential penalties just isn’t worth taking. This goes double for people who are new to the gig economy. It’s one thing to try to swing it yourself with tax accounting software once you’ve been on your own for a few years, but if you just got started – whether it’s a few articles or a few pick-ups on Uber – don’t go it alone. Seek out the advice of a professional tax accountant that has experience with small businesses, freelancers and independent contractors.
The pros at McManamon & Co. are well-versed in all the latest tax codes and deductions for the smallest of businesses, and offer affordable tax services that can help you keep more of your hard-earned income. We also offer small business consulting services, so we can help you out with issues like corporate organization and tax planning for future years.
Doing business on your own doesn’t mean you have to wrestle with your taxes on your own. Call us at 440.892.8900, or get in touch with us online to keep yourself on the right side of the IRS.
Tags: freelance, McManamon & Co., small business, tax tips for freelancers, taxes | Posted in accounting, McManamon & Co., small business, small business taxes