The decision to become a freelancer is one that many people in the US come too. The idea of working for yourself and not being tied down to just one organisation is a liberating thought and can make for an exciting and varied career.
By Amanda Walters
Unfortunately, it does mean that you have to also take on the responsibility of filing and returning your taxes on that extra income. What was once the job of the company accountant suddenly falls on you. Whilst this can be a daunting task, there is plenty of help available and this article should hopefully get you started. Here is a list of four essential documents that a freelancer needs to file their taxes correctly.
1099 forms or more specifically, form 1099-Misc, is one of the most important tax documents for most freelancers. If you were paid more than $600 for freelance work, you should receive one of these forms. You should receive one of these forms from each client you work for.
It is essentially a document which will tell the IRS how much income was paid to you by a party other than your main employer (if you have one). As side freelance work and second jobs have become more popular over the years the phrase “1099 workers” has been used to define jobs in which these forms are essential e.g. tutors, caterers, musicians etc.
Receipts for Business Expenses
Just like any business, freelancers can write off expenses for things such as essential equipment, business-related food and office expenses. The guidelines state that these expenses must be “ordinary and necessary”. If expenses submitted are deemed outside of this description, you’ll most likely be refused the deduction.
In order to claim these expenses, you will have to supply a definitive list of receipts. Without it, the IRS will most likely not consider your request and you will have missed out the opportunity to save some tax!
Many freelancers will be travelling via car to meet with and work on client projects and therefore, can claim on the mileage as a business expense. Keeping track of how many miles you’ve travelled then, is vital when it comes time to pay your tax.
There are several ways of doing this, from using mileage tracking apps to keeping your own personal spreadsheet which accurately details what journeys were made when, and for what purpose.
Freelance work can bring in various amounts of income, which can make it difficult for the IRS to tax appropriately. This form essentially allows you to submit an estimated income for the current year.
This is obviously difficult to do and it’s possible to underestimate this income, meaning not paying the correct amount and receiving a subsequent fine. Using previous years income can help avoid this issue.
If you have the reverse issue and end up overpaying tax you can receive a tax refund at the end of the year.