If this is your first year as a freelance writer, it’s scary filing your own taxes! The forms can be confusing and the amount you owe might just shock you. You might have even been blissfully unaware that you were supposed to be paying quarterly taxes throughout the year, which can come as quite a surprise. Not to fear!
Here’s some information on how to file, what you can deduct (even if you aren’t itemizing), and some answers to frequently asked questions that might be on your mind. Let’s get started!
The following is a guest post written by Romeo Razi and it is not intended as tax advice. If you have questions about taxes, please reach out to a licensed CPA or other tax professional.
What are your tax obligations as a freelancer?
If you’re a freelancer, you’re self-employed. That means you need to pay two types of tax: income tax and self-employment tax. Here’s what they add up to:
- Self-Employment Tax: You have to pay 2.9% to Medicare and 12.4% to social security, adding up to a flat rate of 15.3%.
- Federal Income Tax: Your income tax rate changes depending on how much money you make. Your tax rate will range from 10% to 37%.
- State Income Tax: If you live in a state that charges income tax, you will have to pay this as well, but we’ll focus on self-employment and federal taxes today.
Keep in mind that federal income tax is a stepped system, meaning only the portion that exceeds each bracket’s threshold will be taxed at a higher rate. Just take a look at this table:
What tax forms do freelancers need to file?
The IRS loves forms, so you’re going to need to grab a few. Most likely, you’ll need:
- Form 1040 (standard individual income tax form)
- Schedule C (to report profit or loss from your freelancing)
- Schedule SE (to calculate your self-employment tax obligation)
- Form 8829 (if you don’t want to use the simplified method for the home office deduction)
How to Fill The Schedule C
The Schedule C has five parts, but it’s fairly straightforward. In fact, most freelance writers probably won’t need Part III or Part IV at all, and you might not even need Part V (depending on your business). Let’s go through each part in-depth and explain some of the write-offs you should consider along the way.
You have to report all income you earned from writing and other freelancing gigs. Even if you the platform or payment processor you use (or your clients themselves) did not send you a 1099 or other tax form, you have to report all of the income you earned.
- The income section is where you report all the money you made as a freelancer last year. It all goes on Line 1 – Gross Receipts.
- If you refunded a client at any point (or suffered a chargeback), add that amount lost on Line 2 – Returns and Allowances, then deduct Line 2 from Line 1 on Line 3.
- You can probably ignore Line 4 – Cost of Goods sold unless you handled merchandise. If you did not, just put the Line 3 number on Line 5.
- You can likely ignore Line 6 – Other Income, but confirm this is true for your situation.
- Add Line 5 and Line 6 to get Line 7 – Gross Income.
That’s it. Part 1 is done!
Go through all the lines in this section and determine if you have expenses to add to this section. These expenses allow you to reduce your taxable income without itemizing, so think long and hard! There are many expenses you might be able to deduct, but here’s a look at the most common…
Line 8 – Advertising
- Did you pay for a sponsored post?
- Did you pay to get into someone’s newsletter?
- Did you pay to get listed in a directory?
- Did you pay to post an ad somewhere?
Line 10 – Commissions and Fees
- Did you pay any processing fees?
- Did you pay an editor/co-writer a commission?
Line 15 – Insurance
- Did you maintain property insurance for an office?
- Did you maintain business liability insurance?
Line 17 – Legal and Professional Services
- Did you pay a tax preparer or advisor last year?
- Did you pay to consult with a lawyer about your business?
Line 18 – Office Expenses
There’s always confusion between the “office expenses” and “supplies” categories. Things that belong on Line 18 include items, equipment, and services related to running your office. They are more permanent in nature.
- Did you purchase furniture for your office?
- Did you have to pay rent for an office outside your home?
- Did you pay to have your office cleaned and/or organized?
- Did you pay for anything else that stays in your office, like software?
- Did you purchase other equipment, like work phones, laptops, or printers?
- Did you pay for domain registration, web hosting, and other services?
- DId you pay for courses, training, coaching, and other professional education?
- Did you pay for software licenses or subscriptions, like Microsoft word or LinkedIn Premium?
Line 22 – Supplies
Many things that don’t quite fit into the “office expenses” category likely fall into the “supplies” category. These expenses are more fleeting, temporary, or consumable by nature.
- Did you stock your office with coffee or water?
- Did you buy toner or ink for your office printer?
- Did you purchase stationery or marketing materials?
- Did you buy pens, paper, or staples?
These lines are the ones you’re most likely to fill as a freelance writer, but be sure to check all the others for additional expenses you may be able to deduct.
Finishing Part II
- Add up lines 8 through 27a and put this number on Line 28
- Subtract Line 28 from Line 7 and put the sum on Line 29
- Calculate your home office deduction on Line 30. If you’re using the simplified method, you’ll see the instructions right there in the form. If you want to use the more complex method, fill form 8829 and attach it with your return.
- Subtract Line 30 from Line 29 and put the sum on Line 31. If the number is not negative, enter it on Schedule 1 (Form 1040) line 3 and on Schedule SE line 2.
That’s it! Part two is finished.
This section refers to “Cost of Goods Sold.” If you did not enter a number on Line 4, you can leave this section blank. Most writers will.
Complete this part only if you are claiming car or truck expenses on line 9 and are not required to file Form 4562 for this business.
This section is for any business expenses not included on lines 8–26 or line 30. If you use this section, total all the other expenses you add on Line 48 and enter it on Line 27a as well.
That’s it! Your Schedule C is complete.
What’s the best tax software for freelancers?
I don’t recommend people filing their freelancer tax return without software. There are too many forms, and if you accidentally make a mistake, the last thing you want is the IRS to start sending you letters.
There are a lot of software options out there, but not all of them offer a self-employed feature for freelancers. Here are the most common ones that do, with pricing:
- TurboTax Self-Employed ($119)
- TaxAct Self-Employed ($94.95)
- TaxSlayer Self-Employed ($59.95)
Keep in mind, if you need to file a state tax return, they’re going to charge you more — usually about $10 to $20 extra. However, you can find discounts and this fee is deductible on next year’s tax returns.
What if I didn’t pay quarterly taxes as a freelancer?
If you are a freelancer, you should be sending in estimated quarterly tax payments every three months. If you did not do this last year, you might have an estimated tax penalty on your tax return. The penalty depends on how much depending on how much money you made, and how much tax you owe the IRS. Software like TurboTax will help you calculate this penalty and give you the option to pay it with your return or let the IRS bill you later.
What if I can’t cover the taxes I owe?
If you didn’t set aside enough money to pay the IRS, don’t fret. It’s not uncommon to owe more than you set aside, but it’s definitely not a problem you want to stress about. If this is the first time you’ve fallen behind on taxes, you can get on a payment plan with the IRS. If you already have back taxes, you may be able to amend your existing payment plan, but you will need to call in.
The IRS has made it easy to set up monthly installments and you can probably do it all online without calling in, unless there are special circumstances. However, you should keep in mind that you will pay penalties and interest until the balance is paid in full, so you’ll end up paying substantially more.
Another option is to ask for a short-term payment plan, which is like an extension in a way. There is no fixed monthly payment. Rather, the IRS just expects you to pay the full balance in 180 days. Still, interest and penalties will accrue, so you’ll want to pay the balance down as you can. You may be able to convert a short-term agreement to a long-term agreement if you can’t pay it all in 6 months.
The IRS has many resources for you if you’re in this situation. Just know that falling behind on taxes is more common than you might think and it’s nothing to feel bad about.
Your first-year filing taxes as a freelancer is stressful. To be honest, I know that you’d rather write, instead of worrying about numbers! The IRS gives most of us anxiety, so I’m hoping that the information I provided helps you not be as stressed.
If you want to follow more of my writing about taxes, please consider subscribing to my blog, TaxedRight.