Guide

Freelancer tax guide 2002 | ZDNet

Freelancer tax guide 2002 | ZDNet
Written by Publishing Team

If you generate a significant amount of income as a contractor or independent worker, or if you are self-employed full-time, you are required to declare this income on your 2021 tax return and make quarterly tax payments to the IRS.

A “freelance,” “self-employed,” or “entrepreneur” income is money that is earned without you being a full- or part-time employee. In other words, it is the income you receive without the standard W-2 tax form associated with traditional employment; You will receive a 1099 form instead. Most of all, the tax burden is on you. Funds are not automatically withheld throughout the year by the employer to cover the tax burden. When you work for yourself, you will have to pay your employer taxes – and the personal side – of the taxes yourself.

Many sources claim that you do not need to file taxes on freelance work if the tax burden will be less than $1,000. According to the IRS, entrepreneurs and freelancers are required to file a tax return if the net earnings from self-employment are $400 or more.

Using an independent tax guide can help you file 2021 taxes and better understand your tax burden as a contractor.


See also: 2002 Income Tax Handbook.


Independent Contractor vs. Employee

If you are not sure what form you should receive or the level of tax liability you will be liable for; The IRS classifies the self-employed or contractors as anyone who is self-employed or self-employed and who provides services to other businesses or to the general public.

There are more specific requirements that classify you as a contractor:

  • You are in control of the outcome without being instructed how to do it
  • You are not trained to do the job by the company or individual contracting with you
  • You pay a fee or by job
  • You don’t get benefits like insurance or paid vacation

Forms You Need for Self-Employed Taxes

The two tax forms you may already be familiar with are the W-2 tax form, which is received through traditional employment, and Form 1040, which is the US individual income tax return form.

The forms that freelancers need to file taxes correctly vary.

Form 1099-Misc

Also referred to as the miscellaneous income tax form, this is the tax form used to calculate the tax liability as a self-employed person. If you have earned all of your income through self-employment, it will all appear on this form. Otherwise, your income may be split between Form 1099-MISC and Form W-2.

The companies you contract with may also send you a 1099-MISC form. If you have contracted with several companies, you will need to collect this form from each company.

Form 1099-K

If you receive any payments through what is known as a Payment Settlement Entity or PSE, they must send you a Form 1099-K for payments over $600. PSE includes third-party settlement organizations such as Zelle, Cash App, Venmo, PayPal, and Stripe.

Form 1099-K is a statement of a payment transaction that must be reported. In some cases, the company or individual you contract with may not send you a 1099-MISC form and instead pay you via PSE. If this is the case, you will need this document to report this income.

Form 1040-ES

This is the form you use to pay your estimated taxes quarterly, and it’s an option some freelancers make to split their taxes into four separate payments throughout the year. If you don’t want to fill out the form, you can also easily pay your quarterly estimated taxes online through the IRS website.

Form W-9

If you have done any freelance work for a corporation, you should have received a W-9 to fill out. This is the official form that third parties use to obtain your name, address, and taxpayer information. If a company asks you to fill out a Form W-9, that means it will tell the IRS that it paid you for contract work.

What You Can Deduct From Freelance Taxes

As a freelancer and self-employed person, the government recognizes you as a business entity whether or not you establish yourself as a business. This means that you can take certain business tax deductions that W-2 employees generally cannot.

Some of the more common tax deductions that freelancers take include:

home office costs

If you maintain an office at home, you can write off the cost of that office from your taxes. You will need to calculate the total size of your home or apartment in relation to your home office, and then calculate exactly how much rent you are paying per square foot of office space. With the simplified option, you’ll deduct $5 per square foot of office space.

In order to receive this discount, your home office should only be used for business purposes. For example, if you normally work out of your living room, you can’t claim it as a home office because it’s used for other purposes.

Services

If you maintain a home office, you can calculate the utility costs for maintaining that office as well — but only that office space, not the rest of your home. Typical utility costs include gas, electricity, heating, air conditioning, and telephone service.

Professional development costs

If you have taken any lessons or courses related to the freelance profession, you can deduct these expenses from your taxes.

Professional website costs

Costs related to your freelance website are considered a business expense and may be deducted from your taxes.

Software costs

Any expenses associated with the software that you use exclusively for your business can be deducted from your taxes.

Mileage and travel expenses

If you travel or drive to do business as an independent employee, you can write off miles from your taxes. The IRS releases standard mileage rates each year for this purpose.

The current rates are:

Business setup costs

If you establish your independent business, you can write off the expenses of doing so from your taxes, as these are legitimate business expenses.

Naturally, you’ll want to write off as many expenses as possible. But it is important to be honest and accurate when making deductions. According to Susan VanZant, owner of Professional Public Accountants in Miami, Florida, freelancers tend to inflate their deductions to avoid paying more taxes.

“There are red flags and red flags that the IRS looks for when assessing the information provided to them on your tax return, and they will pay attention to whether the expenses are too high against the income,” Vanzant explains.

Self-employed people tend to be more vulnerable to scrutiny than W-2 employees for this very reason.

How to File 2021 Freelance Work Taxes

If you’re self-employed, you’ll need to file what most tax returns consider “complex.” This means that you will likely not be able to use any free tax software if you want to advertise your independent income or take deductions.

It is important that you treat your freelance profession as a business. for this reason, It may be a good idea to work with a tax professional So you can claim all relevant deductions and have some protection against errors or scrutiny.

If you prefer to file taxes yourself, you can do so for free through the IRS website. A free tax filing program may be available to you if you earn $72,000 or less over the course of a year. If you do more than that, you’ll need to file taxes by filling out forms manually, which means you’ll need to know how to accurately fill out each form. This can be risky for anyone who is not prepared for taxes, as there are many possibilities of making mistakes. You can also print the relevant tax forms and mail them to the IRS.

In most cases, using paid software or relying on a professional tax preparer is safer—albeit more expensive—if you receive most or all of your income through self-employment.


See also: Your guide to filing taxes in 2022.


Quarterly self-employment tax filing

You’re not alone if you don’t know about filing quarterly discretionary taxes.

“One of the most common mistakes I see independent contractors make is not making estimated quarterly tax payments,” Vanzant says. “Failure to make estimated tax payments can end up paying a penalty less than their taxes. We have a pay-as-you-go system, and the IRS wants their money while you make yours.”

In general, estimated quarterly federal taxes must be paid on the following dates:

  • April 15

  • June 15

  • September 15

  • January 15

However, you should check with the IRS each year and save the dates they post on your calendar.

If you’ve earned less than $400 in freelance work over the course of the entire year, you likely don’t need to report it. But any large amount you have paid over the course of the year must be reported to the IRS and require you to pay accurate quarterly estimated taxes on it. Not paying quarterly taxes isn’t the only way you can earn a penalty. Vanzant reminds freelancers and contractors that if you underestimate the amount owed or simply don’t make the payments at all, there will be a fine imposed.

However, estimating quarterly taxes can be challenging. The best way to do this is to look at the tax liability of your independent account in previous years and divide it by four. The IRS also provides a tax worksheet to help you with the calculations.

Unfortunately, there is no simple formula for calculating estimated taxes, because it depends on your deductions and the income you generate. Many financial experts recommend setting aside 25-30% of your income for taxes in a separate account throughout the year.

Frequently Asked Questions About Freelance Tax

What is the deadline for filing tax returns for 2022?

To avoid penalties, you must file your 2021 taxes by Monday, April 18, 2022.

What is the self-employment tax rate for 2021?

The 2021 self-employment tax rate is 15.3%, up to the first net income of $142,800. That comes to 12.4% for Social Security and 2.9% for Medicare.

Are exempt PPP loans subject to tax?

Self-employed and self-employed individuals who have taken out a forgivable Paycheck Protection loan may need to pay taxes on the amount, depending on the state. Self-employed people in Nevada, Utah, Florida, and North Carolina must include PPP loan amounts in their total taxable income.

Some corporations in Virginia, Rhode Island, and California may be liable for taxes on the loan amount. Washington and Ohio do not tax PPP loans (mostly). The rest of the states do not tax PPP loans.

Do Freelancers Pay Less Taxes?

Although the self-employed benefit from more expense deduction than the employee, they are responsible for a 15.3% self-employment tax, as well as income and/or state taxes.

About the author

Publishing Team

Leave a Comment