One of the big changes in American business in recent years is the reliance on freelancers, consultants, and contractors on a day-to-day basis. Many workers—either by choice of necessity—find themselves essentially self-employed and working from home or on a limited basis.

While this has obvious tax benefits for employers, for freelancers and contractorS tax time has now become a much more complicated and stressful time. Instead of receiving a W2 form and having withholding taken from their paycheck, they are now likely receiving a host of 1099 forms, which require a tax payment.

For first time freelancers, it may be critical to seek out professional help to determine your tax obligations.

We can help you through this confusing time and help you navigate your tax obligations. To start, here are some tax tips for first time freelancers as compiled by the FreelancersUnion.org.

Be clear about what kind of return you need to file.
If your freelance business has been established as an LLC, your income and tax payments will be made on your annual individual return (Form 1040), most likely using Schedule C or E for cases of real estate.

On the flipside, if your freelance business is established as a partnership or multiple-member LLC, a separate return is required for your business. Partners must file a partnership return (Form 1065) or either a C-corp (1120) or S-corp (1120S).

Keep your clients on track when it comes to 1099s.
If your earnings from a client reach $600 or more, it is your responsibility to report the income using Form 1099-MISC supplied from your client on your personal tax return. If you do not have the paperwork and have received more than $600 from a client, be sure to follow-up and receive the forms you need.

Remember you are responsible for self-employment tax and income tax.
Garnering more than $400 annually through your freelance business will require you to pay self-employment tax, in addition to your income tax. If you’re fresh with freelancing, this may come as a surprise. It’s important to know what you step into when navigating self-employment.

Keep on top of your quarterly estimated payments.
No matter the walk of life, it’s always important to set some money aside. But if you’re a freelance businessman or woman, it’s smart to habitually set aside funds to cover self-employment tax, as well as your quarterly taxes.

Itemize and record your business expenses.
There are a lot of tax deductions out there—and you should be aware of what you can and cannot use. Know the rules to follow when you’re looking to subtract. If you work from home—there may be regulations on what constitutes an “office.” For example, it must be a room used solely for business. If you meet the requirement, you may be able to deduct a fraction of household expenses, depending on square footage of space.

Commit to solid recordkeeping.
Organization is a muscle. And if yours is out of shape, chances are you’re in for a headache when tax season comes rumbling around. Keeping a hand on all your receipts and necessary documents can save you a lot of trouble in the long-run. So get into the habit of book keeping and filing for your freelance business. Flex that muscle!

Do you live in Cumberland, Salem, or Gloucester County and need tax assistance? Call us at 856.794.8400.