[{"@context":"http:\/\/schema.org","@type":"Article","headline":"https:\/\/moneydoneright.com\/freelance-taxes\/","articleBody":"So you picked up some freelance work last year.  Great!  You are now officially self-employed in the eyes of the IRS, and this means that you need to figure out the whole tax thing.  When you\u2019re an employee of somebody else, taxes are easy.  You get your W-2, plug it into your tax software, and you\u2019re good to go.  But now as a self-employed individual, you have to figure out the numbers to put on your tax return.  Scared?  Don\u2019t be.  Follow the seven tips below, and you\u2019ll have your taxes figured out in no time.  1. Make sure you actually have to file a tax return. Freelancer Taxes Filing Requirements  Not everybody who makes money during the year needs to file a tax return.  Of course, just because you\u2019re not required to file a tax return doesn\u2019t mean it\u2019s not a good a idea to do so.  Someone who had taxes withheld from their paycheck, for example, would still want to file a tax return to get a refund for these withholdings even if they aren\u2019t technically required to file a tax return.  OK, so what are the magic income numbers at which you have to file a tax return?  Well, I\u2019m going to have to answer this question in two parts since the rules for people who don\u2019t have any self-employment income are different from the rules for people who do.  For Non-Self-Employed People Now, if you\u2019re common folk \u2014 that is, not a member of the self-employed class \u2014 the income tax filing thresholds are over $10,000 for some and even over $20,000 for others.  (And for those who file as married filing separately, it\u2019s $5.)  Check out the chart below.  If you don\u2019t have self-employment income, then you would able to go off this chart to see if you are required to file a tax return or not.  Tax Return Filing Requirements (Most People) Filing Status and Age\tRequired to File if Income Is at Least Single, under 65\t$12,200 Single, 65 or older\t$13,850 Married Filing Jointly, both spouses under 65\t$24,400 Married Filing Jointly, one spouse 65 or older\t$25,700 Married Filing Jointly, both spouses 65 or older\t$27,000 Married Filing Separately, any age\t$5 Head of Household, under 65\t$18,350 Head of Household, 65 or older\t$20,000 Qualifying Widow(er), under 65\t$24,400 Qualifying Widow(er), 65 or older\t$25,700 For Self-Employed People But you, my friend, are self-employed, and you\u2019re subject to a different chart in addition to the one above.  Here\u2019s the chart of when you have to file a tax return based on the amount of self-employment income you have.  Hint: it\u2019s a lot simpler than the previous chart.  Tax Return Filing Requirements (Self-Employed People) Filing Status and Age\tRequired to File if Net Self-Employment Income Is at Least Any\t$400 Yes, you read that correctly.  The minimum freelancers need to earn to file income taxes is a paltry $400 in net self-employment income.  Note that this is your income after you take deductions against it.  Once you hit that $400 net threshold, and you have to file Schedule C to report your self-employment income and Schedule SE to determine your self-employment tax.  That said, if you received a Form 1099 for $20,000, and you have $19,700 of expenses against it such that your net self-employment income is only $300 \u2014 that is, less than the $400 threshold \u2014 it still might be a good idea to file a tax return to show the IRS that your net income is in fact only $300.  Otherwise, they may send you a letter asking you why you didn\u2019t file a return to report the $20,000 Form 1099 (remember, they don\u2019t know the amount of your business expenses unless you tell them).  2. Put together your books. Freelancer Taxes Bookkeeping  OK, so you made $400 or more of net self-employment income, and you\u2019re going to have to file that Schedule C and pay that self-employment tax.  Just taking a looking at Schedule C, you\u2019ll notice that Line 1, \u201cGross receipts or sales\u201d, is pretty straightforward.  It\u2019s basically asking how much were you paid by your clients during the year.  But then you have Lines 8 \u2013 27 where you input all your expenses, and you can\u2019t just put them on one line.  You have to categorize them, which is actually super easy to do once you get organized.  Here\u2019s how.  Gather Receipts and Other Statements If you haven\u2019t kept track of your expenses during the year, you\u2019ll want to go through all your business receipts, credit card statements, and bank statements.  Once you\u2019ve compiled these records, you can put together your books.  Put Together Your Books Your \u201cbooks\u201d is just accounting jargon for your bookkeeping records.  For a simple freelance business, all you really need (for tax purpsoes anyway) is a statement of profit and loss i.e. an accounting for how much you made during the year.  If you\u2019re pretty serious about freelancing, I would recommend that you use an online bookkeeping software like Quickbooks that will make maintaining a clean set of brooks a breeze.  Quickbooks imports your bank and credit card data into its interface, and all you have to do is categorize the income and expenses items while Quickbooks does the rest.  But if you only have a few expenses to track, or if you\u2019re just strangely obsessed with spreadsheets, compiling all your numbers in an Excel document or Google Sheet is better than nothing.  I\u2019d recommend using the expense categorizations on Schedule C, which are as follows:  Advertising Car and truck expenses (I\u2019ll talk more about these in a bit) Commissions and fees Contract labor Depreciation (you can likely take bonus depreciation on any assets you purchase strictly for your business) Insurance Legal and professional services Office expense Supplies Taxes and licenses Travel and meals Utilities 3. Don\u2019t forget about your home office. Freelance Taxes Home Office  Now, there are some expenses that you can deduct on your tax return that won\u2019t necessarily be reflected on the books you put together for your business.  One example is the home office deduction, which is calculated on Form 8829 and reported on Line 30 of Schedule C.  What Qualifies as a Home Office? If you work from home, and you have a space in your home that you use regularly and exclusively for your freelancing business, then congrats \u2014 you have a home office.  However, if the space isn\u2019t used regularly and exclusively for your freelancing business, it doesn\u2019t count as a home office.  For example, let\u2019s say you do a lot of work on your laptop in bed.  Does your bedroom count as a home office?  Nope, because it\u2019s not used exclusively for your freelancing business; you also sleep there.  Once you\u2019ve established that you actually have a home office by this definition, you need to measure it to come up with its square footage.  After you have this number, you\u2019re ready to move on to actually calculating the deduction.  You have two options for calculating the home office deduction: the simplified method and the actual expenses method.  You should go with the one that results in the greater deduction for you.  Simplified Method Using the simplified method of calculating the home office deduction, you simply take the square footage of your home office (up to 300 square feet) and multiply it by $5 per square foot.  The result is your home office deduction.  So if your home office is 100 square feet, your home office deduction would be $5 using the simplified method.  Actual Expenses Method The actual expenses method is a bit more involved.  Using this method, you first determine your home office percentage by dividing the square footage of your home office over the total square footage of your home.  So if your home office is 100 square feet, and your entire home is 1,000 square feet, your home office percentage would be 10%.  Then, you multiply this home office percentage by the actual expenses you incurred to live in and maintain your home such as mortgage interest or rent, insurance, property taxes, utilities, etc.  Let\u2019s say your mortgage interest is $10,000, your property taxes are $3,000, your homeowner\u2019s insurance is $1,000, and your utilities are $1,000.  So the total of these household expenses is $15,000  If your home office percentage is 10%, then $1,500 of these expenses would count toward the home office deduction.  Then you add in any costs that are specific to your home office.  For example, if it cost you $300 to paint your home office, then you would add this amount to the $1,500 calculated above for a total of $1,800 cash home office expenses.  Finally, if you own your home, you must depreciate your home office by determining your basis in your home (building portion only), multiplying this basis by your home office percentage, and calculating your depreciation expense based on a 27.5-year useful life.  4. Don\u2019t forget about your vehicle deductions, either. Freelance Taxes Vehicle Expenses  If you\u2019re a work-from-home freelancer who gets all of your work online, then you probably don\u2019t have very many vehicle deductions.  But if you drive to meet clients or for some other work-related purpose \u2014 say, to attend a freelancer conference \u2014 then you very well may have some vehicle deductions to take.  Mileage Method The mileage method is extremely straightforward: you simply determine the number of miles you drove in your freelancing business and multiply this number by the mileage rate that the IRS determines annually.  For 2019, the mileage rate is $0.58 per mile driven for your business.  So if you drove 10,000 miles for your business in 2019, your deduction would be $5,800.  For 2020, the mileage rate is $0.575 per mile driven for your business.  So if you drive 10,000 miles for your business in 2020, your deduction would be $5,750.  Actual Expenses Method The actual expenses method is a bit more involved.  Using this meethod, you have to determine the business use percentage of your vehicle by dividing the number of miles you drove for business use during the year by the total number of miles you drove during the year.  Then you multiply that business use percentage by the total actual expenses you incurred for the vehicle during the year such as insurance, maintenance, and gas.  Finally, you calculate the depreciation on the vehicle based on the business use percentage.  5. Pick your tax software. Freelance Tax Software  While you could download and print tax forms from irs.gov, complete them yourself by hand, and then sign and mail them off, it\u2019s must easier to run your numbers through a tax software that will walk you through your tax returns step-by-step.  TurboTax TurboTax is generally regarded as the cream-of-the-crop tax software, and having reviewed it several times myself, I can see why.  If you are a full-time freelancer with significant income and expenses, it\u2019s probably the best choice for you.  H&R Block H&R Block, although most widely known for its walk-in tax offices, also offers a robust tax filing product.  If you have less than $5,000 in expenses for your freelancing business, you qualify for the H&R Block Premier Edition and do not have to pay extra for the Self-Employed Edition.  This is in contrast to TurboTax, which forces you into the Self-Employed Edition to report any freelancing expenses on Schedule C.  6. File an extension if you need more time. Freelance Tax Extension  Yes, the original due date of your Form 1040 is April 15, but you can set that deadline back six months until October 15 by filing an extension.  How to File an Extension The easiest way to file a tax extension is to do it through your tax software or through the IRS Free File program.  Note that while many states don\u2019t require you to file a separate extension for state tax purposes, some do.  You can also download Form 4868, complete it by hand, and mail it to the IRS.  Don\u2019t Forget to Pay Your Taxes Of course, your tax extension is merely an extension of time to file your tax return, not to pay any tax liability due.  It\u2019s important that you estimate the actual amount of remaining tax you owe for the year and pay this amount to the IRS and your state (if applicable) by April 15.  7. Hire a pro if you\u2019re not confident. Freelance Tax Professional  You\u2019re great at what you do, but you may not be great when it comes to taxes and accounting.  And that\u2019s perfectly fine!  If all this tax stuff is confusing, or you simply don\u2019t have time to do it, find a local tax professional in your area to do it for you.  What to Look for in a Tax Professional Look for industry expertise.  Hiring an accounting professional experienced with your type of business makes things go smoothly.  They know what keeps you up at night and are aware of potential risks on the horizon for your business.  It\u2019s easy to find a remote CPA or bookkeeper, and they can be a great option if you\u2019re comfortable.  But if you prefer meeting in-person or need a lot of hand holding, consider choosing a local firm that can be more hands-on.  Where to Find a Tax Professional The best place to find a tax professional is your circle of friends and acquaintances, especially other freelancers in your field.  So tap your network to find good candidates.  With the recent popularity of Facebook groups, it\u2019s easier than ever to find recommendations.  Remember, when people refer others, they typically take it seriously as their reputation is on the line.","name":"Freelance Taxes Article","description":"This article covers the 7 things freelancers must do to file their taxes correctly.","dateModified":"2020-06-13","image":"https:\/\/moneydoneright.com\/wp-content\/uploads\/Freelance-Taxes.jpg","datePublished":"2020-01-23","publisher":{"@type":"Organization","logo":{"@type":"ImageObject","url":"https:\/\/moneydoneright.com\/wp-content\/uploads\/Money-Done-Right-Personal-Finance-and-Investing-Blog.png","name":"Money Done Right Logo","height":"488","width":"60","@id":"https:\/\/moneydoneright.com\/#ImageObject"},"address":{"@type":"PostalAddress","name":"Money Done Right Address","addressCountry":"United States","addressLocality":"Valencia","addressRegion":"California","postalCode":"91354","streetAddress":"23890 Copper Hill Dr Ste 139","@id":"https:\/\/moneydoneright.com\/#PostalAddress"},"url":"https:\/\/moneydoneright.com\/","publishingPrinciples":"https:\/\/moneydoneright.com\/methodology\/","additionalType":"Blog","name":"Money Done Right","email":"support@moneydoneright.com","sameAs":["https:\/\/twitter.com\/moneydoneright","https:\/\/www.facebook.com\/moneydoneright\/","https:\/\/www.instagram.com\/moneydoneright\/","https:\/\/www.linkedin.com\/company\/money-done-right\/","https:\/\/www.pinterest.com\/moneydoneright\/","https:\/\/www.youtube.com\/c\/MoneyDoneRight"],"foundingLocation":"https:\/\/en.wikipedia.org\/wiki\/Santa_Clarita,_California","legalName":"Allec Media LLC","naics":"519130","parentOrganization":"https:\/\/moneydoneright.com\/#ParentOrganization","founder":{"@type":"Person","hasCredential":["https:\/\/cslainstitute.org\/","https:\/\/en.wikipedia.org\/wiki\/Certified_Public_Accountant"],"url":"https:\/\/moneydoneright.com\/author\/logan-allec\/","spouse":"https:\/\/moneydoneright.com\/author\/caroline-allec\/","image":"https:\/\/moneydoneright.com\/wp-content\/uploads\/2020\/01\/Logan-Allec-Money-Done-Right.jpg","name":"Logan Allec","description":"Logan Allec is a practicing Certified Public Accountant, Certified Student Loan Professional, and the founder of personal finance blog Money Done Right.  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