Tax season survival guide: Freelancer & contractor edition
Being your own boss is great. Being your own tax professional probably feels a little more stressful. After all, as a freelancer or contractor, you’ll have extra considerations when filing your taxes, like potential deductions or extra obligations in other states.
You can take charge of your taxes by starting early and tracking your deadlines. Let’s take you through a couple of steps to keep you one step ahead of tax season.
How do I file a business tax return as a freelancer or a contractor?
You will file the same return you normally would when you were working a 9 to 5. You just attach what is called a schedule C.
Form 1040 is the income tax return. Schedule C is just a schedule attached to your Form 1040. You cannot file a Schedule C alone. The Schedule C must be attached to your 1040 income tax return.
You may owe income in more than one state
More money, more problems. Well, in this case, the more states, the more tax-related problems. Determining which states you owe income taxes to can be a pain. Once you start selling your services or products in a state, that state has the ability to tax the income you received from those sales even if your business wasn’t formed in that state or doesn’t have an operating location within that state. Your services or products being used and present in that state are enough for income taxation.
Read more about determining if you have to pay taxes in a state here.
Even if you don’t have an LLC, you can still write off your business expenses.
A common misconception is that you can’t write off business expenses unless your business is an LLC or some type of legal entity. That’s not true. As a sole proprietor, you may take advantage of tax savings in the same manner as a single member LLC.
Don’t forget, just like an SMLLC, you will need to report all income from all your 1099s.
Businesses must provide a 1099-NEC (you might receive a 1099-MISC) to each independent contractor/freelancer who is paid $600 or more in a calendar year. Make sure you report all of the information from each form you receive. If not, you may be subject to penalties.
👀 If you are paid through a platform like Venmo, CashApp, etc. when totaling up your income, make sure you are not double counting the income on your 1099-K and the income on 1099-NEC you should receive.
To read more about 1099-Ks, click here.
Don’t be afraid to ask for help
Knowing when it's time to get help is an acquired skill. And let’s face it, you didn’t get into this business to learn about taxes – be comfortable reaching out to professional tax support whenever you have a question regarding what you need to pay, where you need to be, and when you need to pay it.