Freelance writing is a great way to earn some extra income or even a full-time living, and the job comes with a lot of flexibility—you get to choose your clients, write about the topics that interest you, and work from almost anywhere with a reliable Internet connection. One of the main drawbacks of working as a freelance writer, however, is that it complicates your tax situation. When you are an employee, your employer pays half of your Social Security and Medicare taxes. As a freelancer, you pay the entire amount. You also have to file additional tax forms and keep track of your business expenses. If it is your first time filing taxes as a freelancer, here are four tips to help you make the process as painless as possible.
1. Know your NAICS code. The North American Industry Classification System (NAICS) is used to gather industry-specific economic data. When you file taxes as a freelancer, you must fill in your NAICS code, which lets the Internal Revenue Service know what type of work you do. As a freelance writer, you will use NAICS code 711510, which is reserved for independent writers and artists.
2. Don't forget to enter all of your allowable business expenses. The IRS allows you to deduct certain business expenses on your tax return, reducing your taxable income as well as the amount of tax you owe. Freelance writers can deduct a variety of expenses, including fees paid for legal advice, marketing services and website design. If you attended any writing seminars or traveled to meet a literary agent, magazine editor or other business contact, you may be able to deduct some of your travel expenses. Don't forget about the cost of any membership dues you paid during the previous tax year, basic office supplies and any specialized software programs—such as Scrivener or InDesign—that you used to do your writing work.
3. Gather the correct forms. When you file IRS-1040, you need to complete additional forms that support the claims you make on your tax return. As a freelance writer, you will need to fill out Schedule C to report the income from your freelancing business. Schedule SE is used to calculate the amount of self-employment tax you owe on your freelancing income. If you have a dedicated home office, you may want to take the home-office deduction; if you do, you'll need to fill out Form 8829. You can download these forms, as well as any others you need, from the IRS website.
4. Report all income. It is important to report all of the income you earned during the previous tax year, as the IRS has several ways to verify your earnings. For example, if you provide more than $600 worth of writing services to a client in one tax year, the client may send you a 1099 form at the beginning of the next year. The 1099 form shows how much each client paid you. Since the IRS has a record of each 1099 form, it is easy for agents to determine if your reported income does not match the amount reported by your clients. If you use PayPal to collect your fees, PayPal may also issue a 1099.
Although freelancing has many benefits, it does complicate your tax situation. If you are not confident in your ability to file a return on your own, consult with one of the tax services in your area. A tax professional may be able to find deductions and credits that help you reduce the amount of tax you owe. For more information, reach out to professionals like Jeffrey Beebe CPA.
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