What is the correct way to declare freelance income?

Question

I have a regular part time job with the normal tax issues, but I recently accepted a very small freelance writing job as well. I am unsure how to deal with the taxes and social security stuff with this. The job required me to send in a W-9, but I understand this to be only for their records. What is the right way to declare my income for the freelance job, and how do I withhold the right social security etc.? I am completely lost on this, but I want to make sure that I follow all the rules properly. Thanks in advance!

Answer 1

I'm assuming that this job started during 2007. Anyway, you'll be receiving a Form 1099-MISC that will show your total revenue earned from the freelance writing job. If the amount is under $600, the organization isn't required to send you a 1099, but you're still required by law to report the income. You can simply report the total amount as "miscellaneous income" on page one of the 1040 and then complete Form SE to calculate your self-employment taxable income. However, if you have any expenses to offset this income, you'll need to complete Schedule C (for self-employment income). The Schedule C is pretty much like an income statement: tell the IRS how much revenue your business brought in, and then report what you had to spend to do it (expenses). You probably have at least some postage and paper expenses, I would think, so it's probably worth it to file Schedule C.

If you're feeling uncomfortable about the whole issue, it might be worth your while, at least for the first year anyway, to talk to an accountant (who is a tax preparer) about how to best handle this new business venture. Depending on how much this business is earning, you may need to pay estimated income taxes (federal and state). That's an area that can be really confusing, so it's best to talk to a tax pro who can look at your total tax picture and give you some one-on-one advice.

Good luck! Sounds like a fun business venture!

Answer 2

1

Answer 3

When you sent in the W-9 did you mark off that you are exempt from backup withholding? I assume you did.

It all sounds like you are an "independent contractor". You will be issued a 1099 at the end of the year.

To cover yourself for the current year, look at your return from last year. Determine which tax bracket you are in: either 15%, 28% or 35%.

As an independent contractor, besides Federal Tax, you are also responsible for the payment of self-ermployment tax (Social Security, same thing). The net
rate of self-employment tax is 12.6%, and state taxes as well.

The easiest way to calculate what you will owe is to make a tax projection for the year as follows:

Estimated 1099 Earnings for the Year $ 20,000.00

Self-Employment Tax ($20,000 x 12.6%) 2,520.00
Federal Tax (15%) 3,000.00

Total 5,520.00 divided by 4 = $ 1,380.00 payable to the United States Treasury.

As an independent contractor, you would pay your estimated tax on a quarterly basis - April 15th, June 15th, September 15th and January 15th.

If you cannot estimate your tax burden on an annual basis, then estimate on
a quarterly basis, or a monthly basis times three, or a weekly basis by 13.
There are 13 weeks in a quarter, not 12.

Your estimates can vary from quarter to quarter.

By doing this and doing it regularly, you will not have a scare when you prepare your taxes next year.

For state purposes, do the same thing, but mutiply your earnings by the states income tax rate for a resident.

Answer 4

You file a Schedule C in order to declare the income you made (make sure to take off all the expenses you had, they count against the income). You'll also need a Schedule SE, this is how you pay the social security taxes.

Answer 5

You list the freelance income and any deductible associated expenses on a schedule C or C-EZ. Then you use a schedule SE to figure your self-employment tax, which is for social security and medicare. The bottom lines from each of these schedules transfers to your 1040.

Answer 6

Yes, you need to file a Schedule C, which is where 1099 income goes. Both are correct.

Answer 7

Schedule C
Schedule SE (for the social security and medicare taxes on this income)

Answer 8

Keep track of your income but also keep track of your expenses. If you file a Schedule C, you can deduct certain things like miles, office expenses, etc.

Answer 9

The best way to consult the lawyer.