Some Tax Tips Freelancers Should Know Aboutby Agro Accounting CPA Accounting for Artists, Freelancers & Creative Com
The unprecedented Coronavirus pandemic has made remote work a new work culture! As a consequence, freelancing businesses are reaching new heights. But do you know how the IRS keeps track of the money you earn as a freelancer? Each of your clients is supposed to issue you a 1099-NEC form that gives details on how much they paid you throughout the year. Additionally, your client also submits this form to the IRS.
There are many reasons why a Tax Preparation guide for freelancers is recommended before you start your business.
Another thing that you need to keep in mind is that when you file your Form 1040 income tax return, you must include all the income mentioned on your 1099-NEC forms. If you believe this is not essential, remember that the IRS will match your income amount and other financial details on your 1099-NEC form(s) to your Form 1040.
If the IRS finds that you have underreported your income, you will get a CP2000 notice implying that you owe additional taxes.
Here are a few things that you should know about the 1099-NEC form:
● If you do not receive a 1099 form from your client, then you still have to report your income on your income tax return, fully and honestly.
● If your client has sent you an incorrect 1099 form, then you must let them know so they can correct it as soon as possible.
● It is necessary to get a 1099-NEC form from every client who is paying you $600 or more during the year.
Tip: As a freelancer, if you are in need of tax and accounting assistance, employ affordable Accounting for Freelancers services online.
What forms should a freelancer be aware of?
Generally, there are two important forms—Schedule S.E. and Schedule C. Both of these forms are attached to your Federal and State income tax returns. Now that you know both of the form names, let's figure out what each of these schedules is about.
If you are self-employed, you should be aware of Schedule S.E. When you work as a freelancer, you must pay self-employment tax — money that goes towards your Social Security and Medicare. If you earn more than $400 a year as a freelancer, self-employment tax is payable at a 15.3% rate.
Tip: You can employ a professional to do your income taxes for freelance workers in order to make tax season easy for you.
Schedule C takes into account your business income and expenses. It comes with the title "Profit or Loss from Business" and has 5 sections:
● Part I — includes details about your income
● Part II — expenses
● Part III — covers your cost of goods sold
● Part IV— information on your vehicle
● Part V— additional expenses
With this detailed information in hand, you will be ready to work as a freelancer and stay in compliance with self-employed tax laws in the U.S.
Created on Feb 19th 2021 06:45. Viewed 133 times.