It's never too early to think about your freelancer taxes! Are you receiving a W2 or a 1099?
What Do You Need to Know about Freelancer Taxes?
In general, freelancers are considered "independent contractors" under federal tax law, and do not have taxes withheld from their earnings, which are reported on Form 1099. That means you're responsible for setting aside some of those earnings and paying your own taxes. Your freelance income is reported on Schedule C, and you pay a higher tax rate ("self-employment tax") to make up for the Social Security contributions an employer might pay on your behalf.
Very few of us like to pay extra taxes. so it's important to keep good records of your work-related expenses, which can be deducted against your income to produce the profit (or loss) for the business for the year. Be aware that while most businesses don't show a profit in the first year, the IRS prefers that you show one in three years out of five -- otherwise, your business may be reclassified as a "hobby." Working from home? The IRS has strict rules for claiming deductions for a home office. If you hope to do this, do your research and consider consulting a tax pro (maybe as a barter arrangement for designing a flier or website!)
Watch the video above to clarify the difference when it comes to freelancer taxes, then get yourself to a pro for help and start the year off strong!
Need More Freelancer Tax Help?
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Editors Note: This post has been revamped from its original version and freshened up for accuracy, timeliness, and to help you get that job.