(Picture credit score: Karen Fisher)
Many individuals are switching to a brand new working mannequin nowadays. As an alternative of being on the payroll as a traditional worker, they work as freelancers.
Being a freelancer has many advantages. You’ve got extra management over your hours, the quantity of labor you tackle, and the way you get that work completed. To not point out that many freelancers make more cash per hour for his or her work than they do as workers.
However on the subject of taxes, the story is a little bit totally different. Freelancers now not have it as straightforward as a traditional worker. In reality, if that is your first 12 months as a freelancer, you may anticipate massive adjustments on the subject of managing your taxes. Listed here are 4 tricks to get you began.
1. Collect all of your 1099 kinds.
One of many first adjustments entails new tax documentation. As an alternative of receiving a Kind W-2 out of your employer, you may anticipate to obtain a Kind 1099-MISC, Different Earnings, from any buyer who paid you $600 or extra throughout the 12 months. And in contrast to Kind W-2, you need not submit a duplicate of Kind 1099-MISC to the Inside Income Service (IRS) together with your tax return. Your buyer additionally sends the company a duplicate.
However on the subject of filling out your tax returns, be sure to’re reporting the identical quantity of enterprise revenue that is listed on your whole 1099 kinds. If a Kind 1099-MISC is inaccurate, request a corrected model from the sender. Reporting lower than the entire revenue in your 1099 kinds might end in you receiving a correction letter from the IRS.
2. Be sure to actually are a freelancer.
It isn’t unusual for employers to pay individuals to be freelancers who’re truly workers by IRS requirements. This simplifies the work for the employer, since he doesn’t must submit payslips and pay wage taxes. However sadly that isn’t right.
When you actually are an worker, try to be handled as one. This consists of receiving advantages and payroll taxes paid in your behalf.
Typically, you might be an worker if the corporate tells you methods to do your job, pays in your provides or different bills, and treats you roughly like a everlasting worker. Go to the IRS web site for extra info.
When you suppose an organization misclassified you as an impartial contractor when you’re truly an worker, you may submit a Social Safety tax type. Use Kind 8919, Uncollected Social Safety and Medicare Tax on Wages to calculate and report your share of uncollected Social Safety and Medicare tax as an worker.
3. Report your freelance revenue on the proper type.
The shape used to report your freelance enterprise revenue and bills depends upon how the enterprise is organized.
If you’re self-employed and haven’t in any other case organized your small business, you seemingly report your freelance revenue on Schedule C together with your Particular person Earnings Tax Return, Kind 1040.
You may also file Schedule C in case you incorporate your small business as a restricted legal responsibility firm (LLC) and you’re the sole member.
4. Remember state and native taxes.
Relying on the character of your work, you might have to register your small business together with your state or municipality. It’s essential to at all times register in case you use an organization identify apart from your personal.
In case your state or municipality levies revenue taxes, you need to embody the freelance revenue in your tax return. Relying in your state’s legal guidelines and the kind of revenue you obtain, you may additionally be required to file state use and payroll tax returns.