Understanding Taxes For Freelancers And Self-employed
When it comes to paying taxes, there are some special circumstances and specifications
that one must follow if they are a freelancer or if there are self employed. Most of these individuals are writers or workers in some other creative field where they are not employees of a company, but still do work for others.
Being self-employed is a great idea, when it comes to taxes and how much you will owe the government. Another good strategy is being an investor or landlord in real estate or some other market.
This is because you are the one that is in charge of your tax payments; you may experience losses or reduction of income, depending on the way you employ yourself. The Internal Revenue Service does pay close attention to freelancers, because they can file for high losses.
If you have a fairly good income and high business losses or experience these situations each year, you may be subject to being examined or audited by the government. There are many ways in which you can protect yourself in these types of situations.
Creating a tax strategy will be extremely helpful when it comes to avoiding unnecessary payments. You can lessen your chance of experiencing problems or investigation by reducing your taxable income or shifting some into nontaxable, utilizing credits, and paying the correct amount that is estimated.
When it comes to being a freelance writer or creative type, you can completely control your level of taxable income, which also means that you can control the amount that you have to pay to the United States government at the end of the year. As a freelancer, you are considered a sole-proprietor, or self-employed.
The best way to stay organized is to keep your independent contracting income free from any other forms of payment that you receive. If you do work for another company or business on the side, make sure that you separate your checks from those that you receive from your own personal work.
Make sure to pay attention business related expenses that you may be able to report when you file. Organize your receipts by placing them in envelopes and labeling them.
You could also digitally record them through a spreadsheet or program. Business related expenses usually include insurance, office payments, rent, travel, supplies, advertising, legal services, and utilities.
There may be others that you are able to think of or that will qualify. Those that do a great deal of work through the use of the internet or a computer may also be able to file for deductions on internet, software, a computer, or website costs.
If you are self employed and you pay for your own health insurance, be sure to make note of this when you are filing. This will also be considered an expense.
Very often, the use of a home office is not able to be considered on returns; therefore, if you wish to receive payback regarding utilities and office related payments, you may need to rent out a small space to do your work. Independent contractors have more business assets than they usually believe they do.
An asset is any type of property that is used to create income for longer than one year. Therefore, things like a website, software, computer, and even office furniture can be named as a business asset.
Make sure to deduct the full cost of these types of items, and name them as an asset on the documents that you file. They can be treated as either capital or ordinary expenses and used for depreciation.
Depreciation is spreading out the cost of a large purchase over a number of years. When you wish to depreciate your assets, you can take big ticket items and have their cost spread over a few years, so that you do not file for all of it at once.
If you would rather just do it for one year, then that is perfectly acceptable; however, you will need to ponder the success of your work and make sure that all of your payments are taken care of. Being self-employed or an independent contractor is not for everyone; however, you may find it extremely beneficial when the April season rolls around.
by: Jack Landry
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