Taxes for the Freelance Writer

It’s that time of year again – that time when everyone’s thinking about income taxes. Come January, tax tips and questions about taxes for freelance writers are hot topics on virtually every writing forum out there.

I’ve never met a person who’s indifferent to taxes. Most folks either love them, or hate them – usually depending on whether you have to pay. New freelance writers generally hate them, only because they don’t know what they don’t know yet. When it comes to something new, it’s always the unknown that creates those knots in your gut.

So, since I’ve been self-employed for several years now, I thought I’d shed a little practical light on the subject, for those just getting started with the whole freelance, self-employed tax situation this year.

Setting up shop as a freelance is easy enough. Unfortunately, most novices don’t think about the tax implications of what they’re doing until their first tax season rolls around. Then the questions pour out.

What do I have to claim?

How do I deal with 1099s?

What classifies as a deduction?

Am I supposed to pay quarterly taxes?

I think these are the most common questions I hear from freelancers, no matter what their profession. Actually, let’s broaden that statement…I think those are the most common questions asked by anyone new to being self-employed.

So, for those of you new to filing as a self-employed individual this year…first, congratulations for earning enough to have to file taxes to begin with…second, it’s not as hard as you might think. Seriously.

You’ll need these forms (at least…you may need others, depending on your situation):

Form 1040, Personal Income Taxes

Schedule C, Profit or Loss from Business

Schedule SE, Self-Employment Tax

If you have kids and meet the income requirements, you’ll need other forms for EIC and such. Then again, if you use a service like TaxAct or TurboTax, you won’t need any forms…just answer a bunch of questions.

Claiming Your Income & Dealing with 1099s

In terms of Uncle Sam, you have to claim everything you make as a freelancer. Everything. From the $132 you made guest blogging to the $.73 you made in AdSense revenue on your blog. All of it. The only way you don’t have to claim income is if you made less than $400 TOTAL as a self-employed person, according to the IRS. You should keep a careful record of what articles you write, for whom, as well as accurate records of when, how, and how much you get paid. If you’re ever audited, the Tax Guy’s gonna want to see your records and how to came to your income totals.

For companies and some clients where you made $600 or more, they’ll send you a form 1099MISC, which is the freelance version of a W-2. If you read the instructions for the 1040, it tells you what to put where on your return. If you use a service or software, they’ll ask you specifically if you have 1099 income to declare.

(**Note** I used TaxAct every year. Until this year, I just lumped everything into one final income number. This year, I had to separate my 1099 income from the rest. I just took my income total, deducted the amounts listed on various 1099s, and entered the remainder as my non-1099 income. Then I entered each 1099 when I got to those questions.)

To document your income:

• Print Paypal payment receipts
• Keep a ledger or spreadsheet of article assignments, payments, and other running records of your income
• Photocopy paper checks and hang on to bank statements showing direct deposit information from contracts.
• Each month, drop all your income-proving documents in a large business envelope or file folder. Write your totals on the outside of the folder or envelope to make it easier to tally up your income at the end of the year. It’s a good idea to list totals by contract, so it’s easier to double check 1099 income when those forms come in.

Business Deductions and Expenses

What can you claim as a business deduction if you freelance out of your home? This is where things get a little tricky and you should be able to document whatever you claim. Just like with your income, you will need proof of everything. Be sure to save receipts (cash register or email print outs) and categorize them into envelopes as well, for easy tax prep. In short, you can claim:

• Supply expenses (those thumb drives you bought to store your writing work, printer paper, pens, etc. – basically anything you bought SOLELY for use in your writing or other freelance work.)
• Fees and dues (Paid for a business license? Joined a professional organization? These expenses are tax deductible.)
• Advertising expenses (Paying to host a website advertising your services? Business cards, brochures, letterhead printed? Hired someone to tweak your business site? Did you buy ad space on someone’s blog? Pay for an AdWords campaign? A membership to a job board or resume posting site/service to help gain customers? Even your LinkedIn fees are an advertising expense. It’s all deductible, so long as you have proof it was a legitimate business expense in an attempt to garner more customers.)
• Business use of your home. This is where most folks get confused in terms of what they can and cannot claim. Primarily, you have to have a separate area of the home – like an office or guest room, that is used solely for your business. If you also use it for personal use, there’s no deduction. If you have somewhere that’s used only for your business (an office, a shed out back converted to an office, etc.) then you’re eligible to claim a certain amount of mortgage interest, utilities, and other expenses as a business deduction. Check Publication 587 for all the details on claiming a portion of your home.

Wednesday, we’ll talk about filing quarterly taxes. Most new freelance writers won’t need to file quarterly taxes. However, if you expect to owe more than $1,000 in tax liabilities, then you have to file quarterly or risk penalties. If your spouse works, or if you have income from other sources, you might seriously need to look into quarterly taxes. However, if you’re anything like me…a single parent with kids…you have to make A LOT before you owe anything even close to $1,000 in taxes for the year. (Keep in mind, that’s $1,000 in tax liabilities…that’s not counting anything withheld from a paycheck.)

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