Taxes and Freelancing

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Being a freelancer is a great way to make use of your skills and entrepreneurial mindset. You find the clients and do the work, yet you're still your own boss. But there are serious tax implications.

Before getting started I will note that I am not a tax professional, and you should get professional advice for your particular situation. However, some tax issues are the same no matter your business.

How you handle your taxes depends in large part upon how you file. Are you self employed, an independent contractor or did you set up a corporation? The self employed or independent contractor will need to fill out a Schedule C tax form while the incorporated business will need to fill out the forms appropriate to their needs.

If you earn at least $400 combined from all sources throughout the year you will need to pay taxes. If you expect to owe at least $1000 in taxes you will need to pay estimated taxes quarterly. These are the two most basic facts you need to be aware of. You can file your estimated taxes by using Form 1040-ES. My personal favorite way to handle quarterly taxes is through https://www.eftps.com/eftps/, which is run by the federal government. You can even schedule your payments in advance if you don't want to have to think about it throughout the year.

One of the most common questions I see people ask is whether or not they need an Employer Identification Number, or EIN. So long as you don't have employees, this is more of a personal preference, unless you also do certain things within your business. Many people would rather use an EIN than a Social Security Number for business dealings. These are easily applied for.

The biggest challenge is figuring out deductions. This is one area where I strongly recommend sticking with the advice of a tax professional. The rule of thumb is that if it has to do with your business there's a good chance you can deduct it, but you need to be very clear on what is for your business versus your personal use. Some items can be partially deducted if you use them both personally and professionally, and there are various rules for mileage and the like.

The home office deduction is a popular one and also a major audit flag, so if you're eligible to take it make sure you do it right. The space must be exclusively your home office, not for other uses. It's easy to abuse this deduction, which is why you are more likely to get audited if you claim it. However for many freelancers it is a legitimate deduction.

Running a business has many tax advantages but also many pitfalls. While I can give you a rough idea as to what to expect within an article, overall you need to talk with a professional about your exact situation. A professional can help you find deductions you didn't know about as well as warn you if a deduction is inappropriate, so long as you are honest with them.

Article Source: http://depositarticles.com/

Stephanie Foster started www.find-freelance.com/ to give people new to freelancing tips on getting started. You can learn about freelance writing and other freelance possibilities at her site.

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