Freelancers Guide to Tax Forms

Many people choose freelancing as a way to use their skills and abilities in their working life while having freedom – but there are some considerations that a freelancer needs to remember that wouldn’t matter as much for an employed person.

In the eyes of the IRS, freelancers are self-employed, which means that they need to file taxes in the same way that a sole proprietor would.

Aside from managing your clients, your workload, and your income, you will have to also file extra taxes as a business. While each freelancer will have a slightly different business model, there are certain tax liabilities that all self-employed people will have to include. Some of these are below:

Unfortunately, while you might be freer to choose your working hours and location as a freelancer, you do have more to think about when it comes to tax time than an employee.

Freelancer Deductions

You are more likely to have particular business expenses than a regular employee, but you are also likely to have tax deductions that are not usually allowed, too.

Deductions must be ‘ordinary and necessary’ to be allowed by the IRS, and can include the following:

  • Office expenses
  • Travel and lodging
  • Required equipment.
  • Materials
  • Phone and internet service
  • Education and certification

For freelancers who use their home as an office, there are deductions that can be made based on rent and utilities. This is only relevant if the room you are using is only used for your business, so you would not be able to claim if you work from a desk in your bedroom or from the dining room table.

The best thing that you can do to ensure that you can claim the right deductible is to keep your business and personal accounts separate.

You should keep a business account, where all your payments will be sent and where all your business-related spending should come out. This means that when it comes to tax time, you can accurately record everything that is for the business and from the business, which makes it much more straightforward. Using specific tax forms in this process makes it a lot easier. If you earn more than $600 from a freelance job the 1099-NEC kit will be perfect.

Having a business bank account will also help if you want to become an LLC and become an agency, or if you want to apply for a business loan.

Self-Employment Tax

You will need to report your income for tax purposes on your personal tax form, and you will also have to pay self-employment tax.

For tax purposes, the IRS considers that a self-employed person is both the employer and the employee of the business. Self-employment tax represents things like social security and Medicare taxes, which are usually deducted from an employee through their paycheck and paid by the employer, too.

At the moment, self-employment tax is set at 15.3% (2023) but this does change, so it is worth keeping track of.

How to Prepare Your Tax Return

When you are getting ready to fill in your tax forms, the first thing to remember is that you need to collect and report all your sources of income.

For most freelancers, this will be relatively straightforward – you should receive a 1099-NEC or 1099-MISC form from each of your clients.

This is an IRS form designed to record non-employee compensation and is used when a freelancer or other non-employee has been paid more than $600 in a year for services to the business.

Your clients should send you their completed 1099 forms by January 31st so that you have enough time to complete your return.

Don’t forget that as a freelancer you are entirely responsible for your personal tax and for your business tax. If numbers aren’t your thing, or you want to make sure that you are taking advantage of all the deductibles and credits that might be available, then you can speak to a tax expert for advice or use an automated service tied into your financial recording systems.

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