Freelancing surely has a myriad of benefits but when it comes to taxes there are several complications that lie in wait. The IRS or Internal Revenue Service perceives freelancers as self-employed, so if a person is earning through freelancing their taxes must be filed as a business owner. While additional deductions can be taken by self-employed individuals, they will also face extra taxes in the form of self-employment taxes. In this article, we will go over some things that you will need to consider if you are a freelancer needing to file your taxes.
Income
Your foremost step as a freelancer should be gathering and reporting all sources of the income you earn. Most freelancers have more than one source of income and they need to keep track of them all. It can be more difficult in comparison to being an office employee, in which you get a W-2 for your tax reporting. A freelancer is more likely to get a good number of 1099-MISC forms from each one of their various clients.
Self-Employment Taxes
Being self-employed makes you your own boss which is awesome until it is time to go through the taxes. Apart from the regular income tax, a freelancer is required to pay a self-employment tax of up to 15.3%.
This particular tax represents the Medicare and Social Security taxes that are taken automatically from other employees’ paychecks. But the difference is that the portion meant to be paid by employers is also deducted from your income as you are perceived as both employer and employee.
Liability of Taxes
When you are filing your taxes your goal is to bring down your liability to the lowest amount allowed. When working as a freelancer, you are bound to have more business-related expenses than a regular employee so you are permitted to take a bigger number of tax deductions that are not allowed commonly. But keep in mind that you are only allowed to take the deductions that are necessary and ordinary for operating your business.
Categories of typical deductions
As a standard rule, freelancers can write off finances for the following things:
- Food that is business-related
- Expenses for the office
- Lodging
- Required material and equipment
The guideline formed by the IRS for tax deductions for freelancers is that all expenses must be ordinary and necessary. If you have an item and you are not using it to run your business then it will not qualify as deduction worthy.
Home Office Deduction
The deduction for home office applies to freelancers as most of them work from home. The IRS permits a freelancer to write off everything from utilities to rent for the sections of their home that are used as an office. But the catch in that rule is that the space you dedicate to your office needs must be exclusively in use of your self employed work. It cannot be a room that is borrowed or turned into a home office for the hours that you work.
Travelling and Meals
For freelancer meals and traveling is the trickier of tax deductions. You are permitted to deduct the cost spent on traveling on the way to a job and for business meals that are taken with a client at a rate of 50%. But for these deductions to take place, you need to show concrete evidence that these expenses are essential for the growth of your business. Vacation costs cannot be written off as business expenses.
Certifications and Education
If you are fond of learning and your topic of interest overlap with your work, then the cost of your education might also classify as being tax-deductible. If a freelancer is taking classes to earn certification in their field that enhances their business awareness the cost of it can be written off. The same goes if there are any registration, certification, or licensing costs to bear.
But the major factor for this to work is that these deductions must be directly related to the business of freelancing. You cannot write off a class for gardening, computer programming, or your law coursework as being a reason for a tax deduction.
Afterword
As a freelancer, you are not exempted from tax payments but if you study the rules thoroughly there are surely several conveniences in the form of deduction. You only need to keep your personal and business-related expenses separate to avoid any issues. If you are looking for any legal assignment help Law expert writer UK are the perfect candidate for the job. They provide the best online writing service for law papers and any other subject you are looking for.
