Making the transition from conventional employment, a regular job to freelance work, whether as a writer, graphic artist or computer program, has several challenges, not the least of which is coping with new accounting and bookkeeping duties.
Rather than getting taxes removed from your paycheck as a traditional employee, you must now judge your individual tax payments each quarter as a self-employed individual.
Additionally, freelancers must keep detailed and accurate books if they expect to manage their businesses successfully and prevent fraud and other issues as they grow.
Because of this, it’s imperative to have a basic comprehension of the specific accounting requirements.
Great preparation starts with keeping an eye on a range of essential financial records and forms. Here are a couple of documents you can expect to encounter in the process of handling your freelance taxes and accounting.
Federal Form W-9
The W-9 form is a formal request for taxpayer identification number and tax certificates. As a freelancer, you will probably have to send a copy to each customer and seller with whom you contract, so make sure to keep them handy. It’s comparable to a W-4 form, but it signifies that a separate organization employs you, and thus won’t have any taxes withheld.
Schedule C (Form 1040)
Another critical form for the self-employed, Schedule C is used to report losses and profits from a company when you pay annual taxes. It is also where you may list any business-related deductions. Freelancers will need to calculate the cost of goods, gross profits, and expenses to fill out this form correctly.
Schedule SE (Form 1040)
Schedule SE will help you determine your self-employment tax. This tax includes your federal income tax amount in addition to contributions to Social Security and Medicare. Schedule SE is registered yearly with your regular tax return.
Form 1040-ES
If you anticipate doing enough business to generate over $1,000 in taxes, you’ll be responsible for paying annual income taxation. Form 1040-ES will help you gauge your quarterly tax burden during the year with the enclosed directions. You may complete each payment voucher to trade in or pay your invoice online.
1099 Forms
The 1099 IRS form is the document that your customers will use to report how much money they paid for your services during the last tax year. Think of this document as the W-2 IRS equivalent form for freelancers. There are different types of 1099 forms for various types of payments, but only two are relevant for most freelancers:
1099-MISC:Customers are responsible for sending a Form 1099-MISC to self-employed men and women whom they pay $600 or more in one year. The individual or business that pays a freelancer must file a 1099 tax form with the IRS and send them a copy.
1099-K:This form is for people who have approved credit card payments using your business credit card. You should only get a Form 1099-K in the event you’ve made 200 or more transactions, and the amount spent at one vendor exceeds $20,000.
As a freelancer, you might not have the financial resources to hire an accounting staff to help you through the year. Nonetheless, it’s significant that self-employed people follow the best practices for accounting and accounting. Here are a few ideas for keeping your finances in order.
From the IRS’ view, just because you are not an accountant is no excuse for making mistakes on your tax return. If you can not afford an accountant, a fantastic software program can help keep your freelance business organized and keep cash flowing.
Helpful Resources:
Forms and Publications for Freelancers and the Self-Employed
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