Question about freelance finances

[Jake_Taylor]

Those of you that are freelancing for a living, how do you handle taxes and social security payments? Is there an easy way to figure out how much you need to be paying in so you're not hit with a big bill at the end?

Thanks for any help and sorry if this has already been covered. I didn't see it anywhere.

 

[Rudy Petross]

Jake, this has been covered before, but I'll give you the highlights. First, get a good accountant that has dealt with freelance writers. It will cost about $300 to do your return but will be worth every penny. Plus it is deductible. Pretty much everything you do will be deductible; phone, cable, internet, room in your house/apt. as home office. You will be paying quarterly estimated taxes which the accountant can help you set up. Keep a journal of what you do and where you drive to. I have been freelancing now for five years and love it.

 

[EagleMorph]

I don't think you need to go as far as Rudy is suggesting. It depends on how much freelancing you do, how many organizations you end up writing for, and how much money you're making.

If you're consistently writing for the major magazines and newspapers, then sure, hiring an accountant (at the least) will be a huge benefit.

But if you're sticking with maybe one or two outlets, making a few grand per year as supplemental income, then you can save yourself some significant bucks and eschew the accountant. Read up a bit on the forms and what you can deduct. Keep the records as suggested and then just slowly work through the Schedule C. It basically lists everything you can deduct.

If you do it right, you won't have a big bill from the feds at the end. You might owe some, you might even get some back if you spent a lot in your expenses. You will, however, not be able to avoid paying some sort of local and state tax.

 

[cranberry]

Jake, this has been covered before, but I'll give you the highlights. First, get a good accountant that has dealt with freelance writers. It will cost about $300 to do your return but will be worth every penny. Plus it is deductible. Pretty much everything you do will be deductible; phone, cable, internet, room in your house/apt. as home office. You will be paying quarterly estimated taxes which the accountant can help you set up. Keep a journal of what you do and where you drive to. I have been freelancing now for five years and love it.

Good solid advice here. My wife freelances for a living and does exactly this. Make sure you pay your quarterlies because you don't want to get hit with the big bill all at once. If you're doing this for a full-time living then make sure you squirrel away money for retirement, too.

 

[Kato]

Jake, this has been covered before, but I'll give you the highlights. First, get a good accountant that has dealt with freelance writers. It will cost about $300 to do your return but will be worth every penny. Plus it is deductible. Pretty much everything you do will be deductible; phone, cable, internet, room in your house/apt. as home office. You will be paying quarterly estimated taxes which the accountant can help you set up. Keep a journal of what you do and where you drive to. I have been freelancing now for five years and love it.

Good solid advice here. My wife freelances for a living and does exactly this. Make sure you pay your quarterlies because you don't want to get hit with the big bill all at once. If you're doing this for a full-time living then make sure you squirrel away money for retirement, too.

Couldn't agree more with these. My wife, too, is a fulltime freelancer. A good accountant for taxes and a a trusty financial person (we use our bank) for retirement savings are musts. I've started doing a bit more freelancing and my wife is all over me about receipts, mileage (even one or two miles across town, if it's freelance-related) and anything that comes close to a deduction that we can consider come tax time.

 

[playthrough]

Echoing all the above advice. A big part of it is the mindset--if you just made $500 for a story, you need to think of it as only $350-400 in your pocket. Gotta always be socking money away for the quarterlies.

 

[SixToe]

Rudy is spot-on about keeping records.

If you freelance enough to file taxes on it, don't **** around with your records or think it's not important. They are.

Ask other freelancers in your area about their accountant to find one who is knowledgeable for what you need. They are worth the money if you freelance a lot. Get a mileage book at an office supply store and write down your dates, starting-ending miles, total miles and destination. Keep all of your receipts; if you go on a trip and eat $6.48 at McDonalds, save it. Save everything.

 

[Flip Wilson]

Jake, this has been covered before, but I'll give you the highlights. First, get a good accountant that has dealt with freelance writers. It will cost about $300 to do your return but will be worth every penny. Plus it is deductible. Pretty much everything you do will be deductible; phone, cable, internet, room in your house/apt. as home office. You will be paying quarterly estimated taxes which the accountant can help you set up. Keep a journal of what you do and where you drive to. I have been freelancing now for five years and love it.

Good solid advice here. My wife freelances for a living and does exactly this. Make sure you pay your quarterlies because you don't want to get hit with the big bill all at once. If you're doing this for a full-time living then make sure you squirrel away money for retirement, too.

Couldn't agree more with these. My wife, too, is a fulltime freelancer. A good accountant for taxes and a a trusty financial person (we use our bank) for retirement savings are musts. I've started doing a bit more freelancing and my wife is all over me about receipts, mileage (even one or two miles across town, if it's freelance-related) and anything that comes close to a deduction that we can consider come tax time.

Absolutely keep track of mileage. I freelance in addition to a fulltime gig, and I keep very detailed records of mileage, expenses and all that. Our accountant called at 9:40 last night to let us know we were getting back a pretty good chunk, so record-keeping certainly pays off.

 

[zagoshe]

Echoing all the above advice. A big part of it is the mindset--if you just made $500 for a story, you need to think of it as only $350-400 in your pocket. Gotta always be socking money away for the quarterlies.

Which is ****ing disgusting, by the way. You bust your ass and are probably underpaid to begin with at $500 and then you have to hand $150 of it over to the government.

That's horse****.

Three years ago I did a project that paid me $2400. It put me over the next threshold in terms of taxes -- and I ended up having to pay $1150 of it to taxes. So in short, I did $2400 worth of work for $1250.

That's ridiculous and the fact that in this country people continue to elect the same fools who waste our money year after year after year is more proof that we as a nation are broken and cannot be fixed.

 

[ringer]

Be careful about state taxes. Let's say you do a week-long TV gig in a state other than your home state. More than likely, you'll have to file a local return for that state. Most pro athletes get killed by this type of thing, too - imagine you're a baseball player and your road games are in 10 different states. Hello tax specialist.

Another reason it's essential to keep good records -- not every outlet will send you a 1099-MISC at the end of the year, but you're expected to report all income with the IRS.

Another fun snarl -- many times, even when you do get a 1099-MISC from your freelance employer, often they'll include all the expenses you've been reimbursed for under the gross pay. You have to report that number as if it was all income. There's a place you can deduct those reimbursed expenses so you don't get taxed on reimbursements, but I can never remember which line, which schedule, and it's not obvious.

 

[Azrael]

turbotax.

 

[SixToe]

Echoing all the above advice. A big part of it is the mindset--if you just made $500 for a story, you need to think of it as only $350-400 in your pocket. Gotta always be socking money away for the quarterlies.

My accountant stressed this.

He said a good rule of thumb is to set aside or plan for 40 percent of whatever you are paid to be sent as quarterly taxes. That may be too much and you may get some of it back, unfortunately after Uncle Sam gleans the interest, but it's better than getting socked a year from now with a huge payment or penalties, or an audit.

He also stressed the need for good documentation. If you're audited and they think your freelancing is a "hobby" so you can buy stuff and write it off, instead of actually using it for work product that you can show, you'll have a tougher row to ***.

 

[Jake_Taylor]

Thanks everyone. You've been a big help for once. ;D

 

[farmerjerome]

One of the shops I used to freelance for paid so little it helped me in the long run. It was steady work that I drove a decent amount of miles for, but the pay was enough that I could take care of one big bill per month.

Anyway, since they paid so little and the government viewed me as self-employed, they viewed my business as a loss and I was basically subsidized. Government mileage alone covered the taxes -- especially the two or three trips a year that I topped 100 miles.

I write off everything from a $1 pencil that I buy on the road to a percentage of the printer that prints out directions (no GPS for me), so by the time I get done even some of the taxes from my day job are offset.

I guess getting paid like crap works out for once.

 

[TheHacker]

Agree with some of the very good advice here. Keep records. Deduct everything. Find an accountant who can advise you well on those things and don't kick yourself for paying him $300 or $350 to prepare your return.

One more thing, though. If you're doing a lot of freelancing, you should think about setting up a self-employment 401k. Again, the tax guy can advise you on this. But the big plus is that you won't pay taxes right now on the money you put in there. Obviously, you'll pay tax on it when you go to draw money out, whenever that is. But if you don't touch it until retirement, that's years down the road. You might also have to pay some fees to maintain that account. But in general it's a way to defer your tax burden in the short term.

 

[Billy Pritchard]

This year I used an accountant for the first time and the $350 he charged was the best $350 I've ever spent.

When we discussed the quarterly payment structure, he said I shouldn't go that route because I file jointly with my wife (who makes way more money than I do, even when I was working full-time). If I wanted to do the quarterlies, my wife would have to do that as well, which in the long run would negatively effect our overall finances. That could be because I have not set up an LLC or anything like that, but I'm not sure (that's why I hired an accountant!).

I'm sure we got hit hard on the year-end taxes from my freelancing, but we still received a pretty hefty return, so there's no way I'd complain.