If you’re a freelance writer, the IRS will probably classify you as a small business owner. This means that doing your taxes can be a little trickier, as you’ll need to file your freelance income as self-employment income. However, being self employed means you’re also able to claim more deductions, which can be a big bonus at tax time. Wondering how you can make the best of these tax benefits? Here are our tax tips for freelance writers.
Understand What You Must Claim
Traditionally employed people receive a Form W-2 from their employers, which is a record of their yearly income and the amount of taxes withheld from that income. If you’re self-employed, however, you’ll instead receive 1099-MISC forms from each company that paid you an amount of $600 or more. 1099-MISC forms can help you tally up your yearly income if you’re self-employed.
It’s important to note, though, that you must still claim self-employment income that you didn’t receive a 1099-MISC form for. For example, if you earned $350 in total writing for one company over the year, you won’t receive a 1099-MISC form from that company but you must still claim that income.
Understand the Schedule C Form
Understanding the Schedule C Form is crucial for self-employed taxpayers. Schedule C is a form that self-employed persons fill out to determine their taxable income. For the self-employed, their taxable income amount is their total income minus their costs of doing business. Which means, if you’re self-employed, you probably won’t have to pay taxes on your full income amount.
Wondering what counts as a “cost of doing business?” The IRS classifies the cost of doing business as anything that’s “ordinary and necessary” for running your business. Some deductible costs on Schedule C include internet costs, office supplies, computers, computer software, mileage, meals, and entertainment.
Don’t Miss the Home Office Deduction
If you do your freelance work from home, you may be eligible for the valuable home office deduction. If you have a dedicated office space in your home, you’re eligible to claim this deduction, which is based on the percentage of your home you use to work. For example, if your home office takes up 20% of the total square footage of your home, you can deduct 20% of your rent or mortgage, utilities, and insurance.
To claim this deduction, however, you must work in a dedicated office space. That means if you write on your couch or at your kitchen counter, where you also do other activities, you can’t claim this deduction. You also can’t claim this deduction if you do other activities in your home office, so if you’d like to claim it, be sure to make your office space a dedicated one.
Don’t Miss the Self-Employed Health Insurance Deduction
A commonly missed self-employment deduction is the self-employed health insurance deduction. If you’re self-employed, you’ll likely pay for your own health insurance— which is deductible. The amount you can deduct is the full cost of your premiums. You can deduct premiums you paid for yourself, your spouse, and any dependents.
This deduction can be made on the first page of your tax return.
Understanding Self-Employment Taxes: Your Social Security and Medicare Liability
Self-employed persons, including freelance writers, must pay self-employment tax. Self-employment tax goes toward your Social Security and Medicare taxes. Everyone must pay these taxes. However, if a person is traditionally employed (by a company), their employer will pay half of the taxes for them.
If you’re self-employed, you must pay the employer half and the employee half of these taxes. As of the 2018 tax year, this amount is 15.3% of your net income, which is the amount you come to after filling out your Schedule C.
You can, however, deduct half of your self-employment tax liability amount, which will lower your taxable income amount. Like the self-employed health insurance deduction, this deduction is made on the first page of your tax return.
Understanding Royalty Taxes
Many people wonder if royalties (for example, royalties from a book released through a publisher) are taxed differently from other self-employment income. This commonly asked question has a simple answer: they aren’t. Royalties are considered income and should be included on your Schedule C.
What Do You Do if You Freelance In Addition To Your Regular Job?
If you freelance in addition to working a regular job, you’ll still need to fill out a Schedule C and pay self-employment taxes, but only for your self-employment income. So, you’ll pay taxes on both your regular and self-employment income. But you only have to pay self-employment taxes on your self-employment income.
Tax Accounting For Freelance Writers
This post covers helpful tips for freelance writers who will be doing their own taxes. However, if you’re a self-employed writer who wants to be sure they file their taxes correctly— and that you don’t miss any valuable deductions— you can always consider having your taxes filed by a professional. A professional tax preparer will be familiar with every possible tax deduction or credit you’re entitled to and can help you pay the IRS the lowest possible amount allowed by law.