The job market in the United States is still considerably sluggish and it is for that reason that many people have decided to work as freelancers. If you are a freelancer, you could be doing a wide variety of things to earn money. For example, there are many people who work as freelance writers while there are others who are freelance transcriptionists, virtual assistants, and even search engine evaluators.
One issue with freelancing is that taxes are not necessarily taken directly out of your pay, which means you will be expected to do your own taxes and pay anything that is owed to the IRS.
Do Your Taxes Online
When you file taxes online, you have the opportunity to add everything at your very own pace. You can complete some of the information, save it, and then complete the rest later. There are many people who are choosing the online option for doing their taxes, especially freelancers. The websites that allow you to do your taxes online with full assistance, including TurboTax, are a huge help. You will surely not be able to mess anything up when using TurboTax, especially since the website takes you step by step through everything.
Collect 1099 Forms
While most employees receive a W-9 form for their taxes, you should be receiving 1099 forms from the people you have worked for throughout the year. More specifically, they should be sending one out if you earned more than $400 from them in the span of one year. Once you have received these forms, you will be able to add information about the kind of work you have done and how much you have earned for the year in total between all of the different clients you have worked for.
Know Your Deductions
Many freelancers do not realize that they can save a lot of money if they know about the deductions they can make. If you have a home office, you can deduct expenses for your internet bill and if you bought a new computer strictly for work, you can deduct that as a business expense as well. It is important that you know your deductions ahead of time so that you can save as much as possible and maybe even get something back.
Claim Your Children
Even as a freelancer, you can still claim your children on your taxes. If you would have owed some money, once you claim your children, you may end up not owing any money at all. In fact, you can receive money back from the Earned Income Credit and the Child Tax Credit. You can also usually get a bit more money back if you are the head of the household.
There are many useful tips that freelancers can follow to ensure they are filing their taxes correctly. Freelancers who earn a large amount of money a year may find it easier to pay taxes on an annual basis. In that case, speaking with a tax advisor would be essential. If you are a freelancer, it is important that you remember you must file taxes even if taxes have not been taken out of your pay, otherwise you could face penalties and fines from the IRS, which is never a good thing to have to deal with.
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This is the first year as a freelancer I have gotten completely smacked with what I owe the federal government after doing my taxes. Do you have any words of wisdom on how to either avoid this sudden drop of a giant bill, or mitigate it at least by doing things throughout the year instead of waiting till the end and being surprised? Should I be setting some amount of income aside, or paying taxes on a more frequent basis?