I’m finally getting back to my complete freelance tax guide, which will be a complete, cross-referenced, eBook that you can use to guide any freelance writer through their taxes. I’m going to blog some useful sections as I go.
Freelance Writer Income
If you’ve ever worked a regular job, you are familiar with the W2 Forms that your employer sends you. This form contains your income, and your taxes withheld, and your pre-tax income items in various boxes. If you freelance on the side, you will also get a W2 from whoever your employer is. Put the information on that in the usual spot on Line 7 of your Form 1040. Do not duplicate this income in your Schedule C. Line 1 of the Income section of Schedule C mentions form W2, but ONLY if the Statutory employee box is checked. (If it is, then don’t include it back on Line 7 of the 1040)
The Schedule C is where most of the magic happens for your freelance writing business. Part 1 of the Schedule C is income. For the average freelance writer, the only line that matters in this section is Line 1. (Of course, you’ll carry that number down into Line 5 and Line 7). Line 4 “Cost of goods sold” is NOT where you put your business expenses. That line if for people that make physical objects for sale, like t-shirts, or go carts.
Freelancer 1099 Forms
As a freelancer, the vast majority of your income will be reported on Form 1099-MISCE. Anyone who paid you more than $600 during 2016 is required by law to send you a 1099-MISC. Just as important, they are also required to send a copy of that form to the IRS. This is how the IRS knows about your income whether you report it or not. So, it’s important to make sure the numbers you enter here match up with what gets reported to the IRS, or the computers may flag your return.
If you do not get a 1099, and you did more than $600 worth of work, the best thing to do is contact your client and remind them. You can report income over $600 without a 1099, but it isn’t as clean, and you don’t want more than one or two of those on your taxes.
For anyone that you earned less from $600 from, they do not have to send you a 1099. If they don’t send one to you, they probably didn’t bother sending one to the IRS either. Technically, you still have to report this income on Line 1.
Finally, any clients you have from overseas do not have to do what the IRS says. If you have a client in England, for example, they are not required to report your income to the IRS or to send you a 1099 Form. In this case, you’ll want to keep copies of your invoices and checks (or statements in the case of electronic payments) as proof that you have reported the right income amounts.
Using Tax Software as a Freelancer
The easiest way to handle all of these entries, and to make sure you get the math right is to use one of the many tax reporting software packages available. While income is usually pretty straightforward, you are going to pay through the nose without every small business freelancer tax deduction you can get.
There is a new Credit Karma free tax review, if you are interested in going that route. Otherwise, any of the usual TurboTax, TaxSlayer, or TaxAct software will work just fine for you. Make sure that the software you pick supports the Schedule C for your small business, and if you plan to take the home office tax deduction, it needs to support Form 8829 Business Use of Your Home.