Every single time tax season comes we see many beginner freelancers that have problems because they do not really know much about the self-employed status and taxation impact. Freelancing business is definitely something that many consider because of the various online income opportunities available at the moment. The truth is the best thing you can do when it is the first tax season you go through is to hire income tax pros in Victoria. However, this is not something that everyone wants. Here are some tax tips to help you go through these tough times.
The Tax Return Type
In the event the freelance business is established as LLC or there is no business entity that is set up at the moment, the income is reported through the form 1040 with the use of Schedule C. Schedule E is reserved for real estate. When the business is a partnership, separate returns are needed.
Keeping Clients On Track
When you make more money from one single client, personal tax returns should be reported with 1099-MISC forms provided by the client listing the money paid per year. When this form is not offered by the client, you have to follow up and then request one to be sent. If there are freelancers working for you, do not forget about sending them the required forms.
Taxes Are Your Responsibility
If you make over $400 per year by making money online with freelancing you have to pay income tax and self-employment tax. This is a huge surprise for many of the freelancers. Double taxation appears when you are working as 1099 contractor or when you work for yourself. Net earnings would be calculated by a subtraction of necessary expenses and ordinary expenses from gross income.
Quarterly Estimate Payments
Besides the fact that you have to put money aside in order to cover the taxes, extra cash should be put aside from every single freelance payment that is received. There are quarterly estimated taxes that have to be paid 4 times per year. Calculate how much you need based on the past work that you did and save a little more to cover potential business growth.
Record And Itemize Business Expenses
You want to seriously consider tax write-offs. That is going to bring money to you instead of having to pay taxes. There are various deductions that can be used like the home office deduction. Many business related activities come with deductions but you have to itemize and record business expenses. It is also possible to deduct parts of the household expenses but you will need to talk with a tax accountant for that.
Solid Record keeping Commitment
This is by far the most important thing at the end of the day. You want to commit to keeping solid records of all that is associated with your online money making freelance business. This should be sort of a resolution. It is necessary since you save time and reduce stress in the long run. At the same time, it helps you to better manage business growth.