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Freelance and contract work is gaining popularity. A business can employ people without providing a place of work, health insurance or equipment. The income that arrives from freelancing is not taxed in advance, so the self-employed freelancer is responsible for submitting income information and tax money to the IRS, or the tax department of their country. You must prepare for these taxes well in advance in order to account for income, business expenses, deductions and other documentation. This article will tell you how to pay taxes on freelance work.

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Steps

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    Allocate more time to doing your taxes than you would have for taxes if you worked for a company that deducted money for taxes.
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  2. Pay Taxes on Freelance Work Step 2.jpg
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    Understand before starting that self-employed people are taxed at a higher rate than an employee. The rate is usually 15.3 percent for income taxes. When you are employed by a business, the business pays for half, 7.65 percent.
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    Contact the places you have worked with as a freelancer if you have not received your 1099s by February 1st of the year taxes are due. They are supposed to send you this information by January 31.
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    Gather all your business receipts or invoices from the tax year.
    • This will include invoices, receipts, business expenses, health insurance premium costs and home office rent.
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    Separate W-2 forms and 1099s from employers. A W-2 says you are an employee of a business and taxes have already been deducted. A 1099 shows money earned from freelancing.
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    Do a rough estimate of expenses versus your income. If you made a profit of more than $400, you will owe taxes in the United States. If you live in another country, check what the threshold is to pay taxes on earnings.
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    Consider hiring a tax professional if you have an extensive amount of receipts, invoices and deductions. Although you will incur further cost, an accountant is very experienced with freelancers and business deductions. If you choose to do this, take all your gathered materials to your accountant or CPA.
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    Consider buying a tax-preparation software program, if you do not choose to use an accountant. This will help you keep track of expenses, invoices and you can often submit your taxes electronically.
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    Print applicable freelance income tax forms from the IRS website. These will include the Schedule C, Schedule C-EZ and Schedule SE forms. Review the documents and read instructions before beginning.
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    Research your deductions that will be on Part II of your schedule C in the IRS Publication 535. Many of the deductions you can make are actually percentages of the costs incurred. For example, it is likely you can deduct a portion of your rent if you have a home office, but that home office may need to have a door that can be closed to separate the office from the rest of the house.
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    Fill out a Schedule C. This is also called a Form 1040, Profit or Loss from Business (Sole Proprietorship).
    • Use the Schedule C-EZ form if your freelance business expenses total less than $5,000, and if you have no employees and no home office deduction.
    • Enter your income in Part I.
    • Enter your expenses in Part II. This is where you will be able to deduct for possible home office, equipment, rent, supplies and more. Any deductions you make will need to have full documentation, such as a proof of purchase or receipt.
    • Enter the cost of goods sold in Part III.
    • Enter information on your vehicle in Part IV, if you are claiming it as a business expense.
    • Enter other expenses in Part V.
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    Fill out the Schedule SE form. This can be either a short or long form, depending upon your freelance income. The instructions are at the start of the form.
    • This is where you can deduct for half the portion of the self-employment tax, allowing you to account and be credited for the freelancer's higher tax rate.
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    Submit these forms along with your other tax documents by April 15th.
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    Consider paying quarterly taxes if your earnings are more than $1,000 per year. The IRS has developed a system where you can estimate taxes and submit payments 4 times per year. Submit through a form called a 1040-ES.
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Tips

  • In the UK, your freelance earnings are taxable if you earn more than 4,615 pounds. You would need to research schedules and submit expenses and income in a similar manner as it is shown above.

Things You'll Need

  • 1099s
  • Accountant or CPA (optional)
  • Tax preparation software (optional)
  • Expense receipts
  • Tax forms


Related wikiHows

How to
Know if You Should Pay Self Employment Tax

How to
Pay Tax As an Independent Contractor

How to
Pay Tax for Contract Work

Sources and Citations

Article Info

Categories: Taxes and Fees | Consultancy Freelance and Contracting

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Español: Cómo pagar impuestos por trabajo independiente

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