How Will Freelancing on the Side Affect Your Taxes?
Amherst, NH Resident Seeks Advice
It isn’t uncommon today, in this gig economy, for people to have side work beyond their full-time employment. It is important to report, and pay taxes on, this additional income. If your freelancing clients are paying you in excess of $600 per year each, should be sending out a Form 1099-MISC at the end of the calendar year as a record of this money paid. When you file your taxes, all of this additional income made from freelancing should be reported to the IRS.
An Amherst resident had recently started a side job, selling some of her craft online. Concerned how this might affect her tax situation, she contacted Merrimack Tax Associates.
Reporting Freelance Income and Paying Estimated Taxes
This type of freelance income falls under the category of self-employment. This means that you are responsible for calculating and paying taxes on the money received. If the anticipated tax bill will exceed $1,000, the freelancer needs to be paying taxes on a quarterly basis. Paying in estimated taxes each quarter will ensure that you are not hit with a fine from the IRS if a large amount is due at the end of the year. It will also allow you to plan accordingly, knowing the tax amount to be withheld.
Take Advantage of Allowable Tax Deductions
One of the benefits of this type of self-employment is the tax deductions that can lower your bill. This includes any types of materials or equipment needed to do the work. This can also include vehicle usage if it is being used for business expenses, totaling milage for these trips. If an area of the home is being used for business operations solely, this square footage can also be deducted from your taxes.
While bringing in more money through freelancing can raise your tax bill, taking advantage of the deductions that you qualify for can make a big difference.
Thanks to Merrimack Tax Associates, this Amherst resident now has a better understanding of how to handle the money she receives from her freelancing and is already planning ahead for her end of year taxes.