Freelancers

Appreciate the info, In Exile. And that was just for the fall sports seasons, so a full year's work would no doubt bump into the low four figures, meaning I should probably deal with the withholding now.

(This assumes I still have either job by December, of course ...)

 

Say I made 10k in freelance income last year, but the vast majority (~8k) came in the final four months of the year. Think I'll get hit with a fee for not paying quarterly since most of the freelance income came in the final quarter? Obviously I'm going to set this up for this year ASAP now that I know...

 

Hard to tell WWS> sometimes they catch things, sometimes they don't notice, but you're at the level where setting up the quarterly makes sense, as does office use of home and all that stuff.

 

Quarterly tax estimates, which include both income and self-employment taxes, fall due on April 15, June 15, September 15, and January 15. The first one covers income earned between January 1 and March 31, the second one relates to April 1 through May 31, the third one attaches to June 1 through August 31, and the final one handles income from September 1 to December 31.

Problems arise when income varies, and likewise the quarterly payment varies. A form 2210 must be attached allocating income and tax payment by period to prevent assessment of a penalty. The IRS automatically assumes a steady income stream unless otherwise shown.

For those who work and freelance, a loophole exists for catch up. Income taxes withheld by an employee are considered equally paid throughout the year no matter the actual date of withholding. Some employees increase their withholding in November and December if they anticipate a tax liability.

IMO, anyone making five figures from freelancing should probably engage a professional accountant. Those who reside in college towns can probably find a tax professor who prepares tax returns on the side and get a 25 to 50 percent discount.

The obvious deductions for freelancers are easy. Mileage to and from an event, cell phone, internet service, computer equipment and supplies, subscriptions, professional dues. The easier thing to do is log the trips and keep the receipts in a file then summarize them at year end.

The home office issue is very tricky. I recommend professional advice before taking that plunge. Most CPAs discourage it because of the audit frequency and the inflexibility of the IRS regulations.

 

More on the home office deduction:

I was reminded by my accountant pal the other day that, if you claim a home-office deduction but decide to sell your home -- AND you actually have some proceeds from what's left, contrary to so many folks who are "upside-down" -- then the same percentage of those proceeds will be subject to income taxes as the percentage of the floor-plan that used as your home-office deduction. Normally, your proceeds from the sale of your home would not be taxed (up to some big fat number, anyway).

His advice: If you think you're going to be selling in the next 2-3 years, skip the home office deduction because you'll lose more on the back end than you'll save year by year. You need to have it off your taxes for three years, officially, to avoid the later taxing, but he thought two years might work.

Again, if you're going to sell your house at a loss or no gain, or just get foreclosed on, this wouldn't apply.

 

Keep in mind, you only have to pay quarterly if you're going to OWE taxes at all....We had to pay two years in a row because of some real estate deals and the second year (first they let you slide) I got tagged with a penalty for not paying quarterly. We asked for a waiver, and got it. Turbotax told us to do that. We have gotten a return every year since and therefore, I do not have to pay quarterly because with my husband's income, our tax burden is taken care of.

 

Thanks for the information, guys.

I have a pretty unique situation... I am a senior in college and do a ton of freelancing. Last year, let's say, I grossed a little over $10k.

It may seem strange, but I spent about $6,500 in traveling. I picked some high profile events and went to them... Call me an idiot, but I viewed it as a way to get to see new cities (and countries) and things without paying for it. I actually went to Europe for 2 weeks to freelance a tournament. And, I still turned a profit at the end of the year. It works nicely as a side job for a college kid.

Am I able to claim those flights, hotels, and things like airport parking and all as expenses?

Any idea how things like mileage to local games would work if I lease my car and don't own it? I believe that I am able to claim my tuition as an expense as well, so I don't know if I'd end up owing any money in taxes. But when should I worry about the quarterly?

 

A deduction is allowed for ordinary and necessar traveling expenses incurred by taxpayer while away from home in the conduct of a trade or business.

Freelance writing is a trade or business, and in order to cover an event in Europe, a writer must travel to Europe. Airline tickets, hotels, meals and parking all fall in the category of deductible travel expenses.

In computing expenses, make certain to include only work days for hotel and meals. Any sightseeing time is considerable personal, but it doesn't affect the deduction for transportation over and back.

The part of the situation is turning a profit but a relatively low one. The income tax will be very little or maybe even zero depending on your filing status and other income. The self-employment tax shouldn't exceed $600 or so.

Substantiate the expenses well, but the risk of audit is minimal due to the income level.