What taxes do freelancers have to pay?
Today's question comes from Elizabeth in Ohio.
Q: I was laid off from my job last year and began working as a freelance web designer. What kind of taxes do freelancers pay and what kind of return do I file?
A: While we never like to hear about anyone losing their job, especially in these challenging times, we salute your resourceful spirit and hope your new career is going well.
As a freelancer, you're considered an independent contractor by the IRS, and you must pay income tax, Medicare taxes and Social Security, state taxes and local taxes, just as other workers do. Lucky for you, freelancers don't pay unemployment insurance (nor can you file for unemployment!). But you may also be required to pay a self employment tax if you make $400 or more as a freelancer.
Remember too that when you work for someone as an independent contractor, they don't withhold taxes but they do report your earnings to the IRS.
Many freelancers file taxes quarterly unless they prepay, in which case they can file annually.
Working for yourself comes with some signficant benefits though. Your business expenses are tax deductable, including the costs associated with your home office (mortgage or rent) and equipment you use to run your business like computers, cameras, cell phones, car mileage, etc. Make sure you keep track of whether or not these are used exclusively for business purposes or if they are also used for personal reasons. If you use business assets for personal reasons you can only claim deductions for the percentage used in the course of business.
Q: I was laid off from my job last year and began working as a freelance web designer. What kind of taxes do freelancers pay and what kind of return do I file?
A: While we never like to hear about anyone losing their job, especially in these challenging times, we salute your resourceful spirit and hope your new career is going well.
As a freelancer, you're considered an independent contractor by the IRS, and you must pay income tax, Medicare taxes and Social Security, state taxes and local taxes, just as other workers do. Lucky for you, freelancers don't pay unemployment insurance (nor can you file for unemployment!). But you may also be required to pay a self employment tax if you make $400 or more as a freelancer.
Remember too that when you work for someone as an independent contractor, they don't withhold taxes but they do report your earnings to the IRS.
Many freelancers file taxes quarterly unless they prepay, in which case they can file annually.
Working for yourself comes with some signficant benefits though. Your business expenses are tax deductable, including the costs associated with your home office (mortgage or rent) and equipment you use to run your business like computers, cameras, cell phones, car mileage, etc. Make sure you keep track of whether or not these are used exclusively for business purposes or if they are also used for personal reasons. If you use business assets for personal reasons you can only claim deductions for the percentage used in the course of business.
posted by Scott at
6:16 PM
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