When working for any company, one of the first things you are asked to do is complete your tax forms for your federal and state taxes. That is what most traditional employees who work in any industry are used to doing before their first paychecks. However, it is a totally different experience and process for freelancers, whose only initial form is a W-9.
Freelancers are their own bosses and do not necessarily follow the same procedures that traditional employees do. Unlike regular employees, whose taxes are withheld every pay check, freelancers do not have to report any income to the IRS until they reach $600. At that point, you are required to complete and file a 1099 form. So while a freelancer may not have to pay taxes each pay check like most employees, there is always the chance that taxes will need to be paid at the end of the year.
Because of the fact that there is a chance taxes will be paid at once at the end of the year instead of automatically deducted from a paycheck, it is extremely important that freelancers plan accordingly. Money should be set aside so that it may be available and ready to be paid to the IRS at the end of the year, if necessary. While this may be daunting to some when deciding to go into the freelance arena, there are certain things that could be very beneficial to a freelancer.
Freelancers can deduct some work expenses at the end of the year if they have to file their taxes for their freelance work. Things that assist the freelancer in completing their freelance work would be deductibles. Things that could be deducted include printer ink, cell phone expenses, flash drives, software related to their work, and even office supplies. In order to easily claim these expenses as deductions, it is very necessary to keep track of all receipts and record and keep all the expenses in a way that is organized and easy accessible if they are needed at some point. It might be a good idea to set yourself up with a separate bank account from which you would pay all your business related expenses. This way you can go and easily look back and see, in one spot, what amounts were spent and when this was done.
If you are considering going into freelance work, or you are already involved in it, this all may seem intimidating and maybe you would like some help. If that is the case, it is always a good idea to speak with a tax advisor or someone who would know the ins and outs of tax preparation. They can give you some valuable insight into what you need to prepare and also give you some ideas as to how to keep yourself organized in a way that would be beneficial to you at the end of the year. A tax advisor should be able to answer all your questions as they arise, so do not hesitate to approach them at another time besides the end of the year. It will be a lot easier and less stressful for you to be prepared throughout the year, than to be overwhelmed at once when it is finally time to submit all your tax information.
So if you get the assistance you need in getting all your questions and concerns addressed throughout the year and you keep organized track of your expenses, it should not be problematic to deal with tax preparation at the end of the year.
Written by Randy Otis of Levy Tax Help.