One of the most vital financial responsibilities you’ll have as a freelancer is that of taxes. Since you’re most likely working from home, you’ll have to take care of this yourself. So, how do you handle taxes as a freelancer writer?
It’s really not that difficult. However, it will take a great deal of motivation and vigilance.
The last thing you want to do is melt through your savings account before it’s time to pay Uncle Sam his cut.
1099-Misc Taxes for Freelance Work
For the most part, freelance writers are given a 1099-Misc form at the end of the fiscal year. That is as long as you cleared more than $600 from any one particular entity.
This form is used as your taxable income when filing state and federal tax information.
So, if you made $300 from clients on Textbroker and brought in $400 from a private client, you wouldn’t have to claim either of them on your taxes even though you technically made more than $600.
This is because each entity files separately.
In fact, a lot of content mills and clients won’t bother sending a 1099 if you made less than $600 from them…because it’s not a legal obligation to do so.
Theoretically, if you could acquire 2,000 individual private clients who all paid you $500 each, you wouldn’t have to claim any of it although you made $1 million. That’s because each entity wouldn’t have cause to send you a 1099-misc form.
But, good luck handling 2,000 clients within a span of a year while making $500 each.
How to Save for Taxes as a Freelance Writer
Whether you’re a writer, painter, gardener, or Uber driver, taxes are an integral part of freelancing. But, depending on your expenses and income credits you accumulate, it may not be as bad as you think.
In fact, it’s not uncommon for freelancers to actually receive a refund if they don’t make enough money throughout the year.
Here are a few tips on how to save for taxes as a freelancer.
Set Up a Savings Account Right Now!
Start saving immediately. Even if you can only squirrel away $10 or $20, it’s better than nothing at all. Set up a specific savings account that is dedicated to paying taxes as a freelance professional.
Banks often let you attach as many savings accounts as you want to your primary account. Simply move the money and let it sit there until April 15th.
This is perhaps one of the hardest things for a freelancer to manage. It’s too easy to dip into the cash throughout the year. So, you’ll need to practice restraint if you want to make sure you have enough come tax season.
Keep Receipts for Certain Expenses
There are all kinds of things you can claim as a business expense on your tax form. For instance, any repairs or upgrades to your computer to help you write is deductable.
If you travel for work, you can claim mileage expenses. Need a more comfortable chair to help you be productive? Keep the receipt.
If you need help figuring out what you can claim, most tax professionals can help you along. In fact, they can probably find deductions that you might not consider.
The bottom line is to keep all your receipts. Because they can offset what you’ll need to pay at the end of the year.
The 10% Rule
The 10% rule is when you immediately deposit 10% of anything you make into your tax savings account. Do this before you pay for anything. Keep it out of mind and out of sight.
Sometimes this means you’ll need to tighten your belt a bit or adjust your budget. However, it’ll ensure that you’ll have enough money to pay taxes when the time comes.
So, if you were to bring in $300 from Textbroker this week, stick $30 into your savings account as soon as the money hits your bank.
I usually go with 10% because it’s often more than enough to pay for taxes as a freelance writer at the end of the year. In fact, the dividends you’ll accrue might provide a nice bonus.
Besides, if you only make $400 from one entity, that means you’re accruing interest on income you don’t need to claim on taxes. It provides a nice cushion to make sure you have enough cash on hand to pay.
Dividends Are Your “Refund”
Of course, the dividends from your bank are not technically a refund. It’s the money you’ve already put in. Still, throughout the span of the year, you should have more than enough to pay taxes and then have leftover cash for anything you’d like.
The point here is to change your mindset. If you manage to get some deductions and fit requirements of income credits, the savings account can be your best friend. You might be amazed by how much you have after sending the check to the IRS.
Personally, I like sticking the extra cash in long-term stock investments as they historically have a better return on average than most banks for the same time period. But that’s a risk I don’t mind taking.
It’s really up to you how to handle the extra money.
Don’t Discredit Tax Professionals
I know a lot of people would rather do their own taxes at the end of the year. And that’s fine. But don’t discredit using tax professionals or services.
For one thing, many of these people know the ins-and-outs of what you can claim. To top it off, most have a guarantee of some kind to protect you if something goes awry.
Needless to say, services like H&R Block and others can help you slim down what you need to pay at the end of the year. And in many cases, it’s worth the fee as they wind up saving you a lot of money.
Don’t Put Taxes Off…
A year goes by a lot faster than many realize. You might put off setting aside taxes as a freelance professional. But before you know it, April 15th comes around and you find yourself forking over quite a bit out of your pocket.
Start putting something aside now to make sure you’re able to sustain yourself later on.
What methods do you use to save for taxes?
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