Hi all,
I am relatively new to the freelance writing concept, and although I am enjoying it, I am kind of scared about taxes. I do not make lots of money (MAYBE a few hundred a month here and the same on ehow), but I heard something about estimated taxes and it has me concerned. I don't want to get in trouble! Last year, when I just made ehow money, I just filed our family's own taxes and had to do a separate self employed form for ehow's money. IS that what everyone else does? I've looked online, but I can't seem to find information about how much money you are have to make before you are required to pay estimated taxes. Would anyone be willing to share their experience(s) with this or have any tips? Thank you!!!!!!!
concerned about taxes
Moderators: Celeste Stewart, Ed
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Elizabeth Ann West
- Posts: 561
- Joined: Tue Nov 13, 2007 4:42 am
- Location: Moncks Corner, SC
- Contact:
Re: concerned about taxes
I am by no means an accountant, so please verify all of this yourself and for your state.
Federally speaking, if you are filing joint, only IF your family is going to OWE more than $1,000 in taxes due to the volume of your business would you need to do estimated tax payments. If you end up owing more than $1,000 in self-employment tax, etc, and you do not pay Uncle Sam throughout the year will you get slapped with penalties. However, if you are a dual-income family, and your hubby is the main bread winner, with kids, chances are you get a healthy return each year if his w-4 is up to date. It doesn't hurt to make quarterly tax payments on what you think you will owe (they show you how to calculate that on IRS.gov), if it's not owed, you get it back as a refund like your husband when he overpays his withholding. The downside is that is money that could have been earning interest for you, rather than sitting at the government's disposal for 6-12 months.
There are people on here that C-C and their freelance writing careers support their families. They must pay quarterly payments.
Every state has the Small Business Administration represented at least in their major cities. I attended a 2-day free class on taxes for small business owners, including employees (not that I have them). Maybe you could see if there are any in your area?
C-C is based in Canada, so you will not receive a 1099 MISC form like you would for other companies accepting freelance work in the U.S. It is YOUR responsibility to document your earnings and keep account of your profits and expenses. There are many things you can write off, if it is for your business, such as travel, reasonable office supply expenditures, etc. However, watch your state tax laws, because they often go by what you report to Uncle Sam. In my state for example, any furnishing or equipment I write off on my federal taxes, SC wants me to pay 10% tax on the value of it every year. So my MacBook for example, I do use it for my business, but it is a personal computer. I do not claim the $1,000 value of it on my federal taxes because I would have to pay $100 to SC this year, and 10% of the depreciated value next year! I write part, part-time. I think my total earnings for my best year yet was $4,000, and my self-employment tax was a few hundred dollars. Writing off a thousand dollars on my "profit" wouldn't bring me tax savings on the federal level to compensate for the raping at the state level.
I am not breaking the law here, let me clear. My computer IS NOT strictly for business, nor was it bought with business funds. It was a Christmas gift. However, when my husband and I considered outfitting me with a legitimate home office (which has to be used only for work, no kiddies getting on the computer to play games) mostly for the tax savings, in the end, it would hurt us more than help us. Therefore, my "office" is a computer bag, one drawer in my rolling plastic cart thing, and any seat in the house, primarily the couch chaise.
Federally speaking, if you are filing joint, only IF your family is going to OWE more than $1,000 in taxes due to the volume of your business would you need to do estimated tax payments. If you end up owing more than $1,000 in self-employment tax, etc, and you do not pay Uncle Sam throughout the year will you get slapped with penalties. However, if you are a dual-income family, and your hubby is the main bread winner, with kids, chances are you get a healthy return each year if his w-4 is up to date. It doesn't hurt to make quarterly tax payments on what you think you will owe (they show you how to calculate that on IRS.gov), if it's not owed, you get it back as a refund like your husband when he overpays his withholding. The downside is that is money that could have been earning interest for you, rather than sitting at the government's disposal for 6-12 months.
There are people on here that C-C and their freelance writing careers support their families. They must pay quarterly payments.
Every state has the Small Business Administration represented at least in their major cities. I attended a 2-day free class on taxes for small business owners, including employees (not that I have them). Maybe you could see if there are any in your area?
C-C is based in Canada, so you will not receive a 1099 MISC form like you would for other companies accepting freelance work in the U.S. It is YOUR responsibility to document your earnings and keep account of your profits and expenses. There are many things you can write off, if it is for your business, such as travel, reasonable office supply expenditures, etc. However, watch your state tax laws, because they often go by what you report to Uncle Sam. In my state for example, any furnishing or equipment I write off on my federal taxes, SC wants me to pay 10% tax on the value of it every year. So my MacBook for example, I do use it for my business, but it is a personal computer. I do not claim the $1,000 value of it on my federal taxes because I would have to pay $100 to SC this year, and 10% of the depreciated value next year! I write part, part-time. I think my total earnings for my best year yet was $4,000, and my self-employment tax was a few hundred dollars. Writing off a thousand dollars on my "profit" wouldn't bring me tax savings on the federal level to compensate for the raping at the state level.
I am not breaking the law here, let me clear. My computer IS NOT strictly for business, nor was it bought with business funds. It was a Christmas gift. However, when my husband and I considered outfitting me with a legitimate home office (which has to be used only for work, no kiddies getting on the computer to play games) mostly for the tax savings, in the end, it would hurt us more than help us. Therefore, my "office" is a computer bag, one drawer in my rolling plastic cart thing, and any seat in the house, primarily the couch chaise.
Re: concerned about taxes
Wow, Elizabeth! Thank you for the reply! That information was very helpful! We are in a low income tax bracket (my husband works construction and I stay at home with our 2 young children) so we typically don't owe anything at tax time. That part about owing over $1,000 cleared it up--thank you. I got a little stressed when I saw that freelancers were required to pay taxes quarterly, and there were penalties if you didn't. But I guess that only applies to the very successful freelance writers 
Thanks for the info about home office write offs too--very helpful!
Thanks for the info about home office write offs too--very helpful!
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Elizabeth Ann West
- Posts: 561
- Joined: Tue Nov 13, 2007 4:42 am
- Location: Moncks Corner, SC
- Contact:
Re: concerned about taxes
Estimated Taxes
Federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. You generally have to make estimated tax payments if you expect to owe tax, including SE tax, of $1,000 or more when you file your return. There are two ways to pay as you go: withholding and estimated taxes. If you are a self-employed individual and do not have income tax withheld, you must make estimated tax payments.
SOURCE: http://www.irs.gov/businesses/small/art ... 46,00.html
I don't know what state you are in, you need to check your state laws, too. States are very funny about personal income tax, not a one of them does it like another (I know, being military, I've lived in a handful).
Also, if your husband experiences furloughs in work, be mindful about the amount of money you are making. Finally, remember that you will ALWAYS be responsible for your Social Security and Medicaid taxes. When you are employed by another, they pay half of those. When you're self-employed, you are stuck with the full 13% or so (I can't remember the exact number, it's higher than I thought before I started working for myself!). If you decide not to pay quarterly tax estimates, it wouldn't hurt to stash away 15-20% of your earnings, especially your first year, just in case......
Oh, and if you're tempted to not count your freelance income for federal income, and yes, there are people who get away with it, audits check bank accounts. You'd be hard pressed to explain regular payments into the family account. It is wise to have your own bank account, even if you just keep it with Paypal, so the money is clear. The filing threshold is $400 I believe, meaning if you make more than $400 over the year, the government wants to know about it. Finally, one piece of advice I was given at the Small Business Administration seminar is profitability. Many people set up "businesses" just to write off thinly-veiled non-business expenses: i.e. my family took a trip to Disney World, I wrote a $20 article about it, I can write off $3,000! Yeah, it doesn't work like that. Now, you took a trip to Disney World, you ate at three eateries and wrote about them so you wrote off the cost of YOUR meal alone, and oh yeah, kept the receipts. That is more reasonable, especially if you priced the article for more money than the price of the meals. I did this with a recent video game, I purchased it with money from my business account, so the transaction is there, we played it, I wrote three articles about it, and we turned it in as credit towards a new game. Bottomline, the IRS wants to see a business that is in the habit of trying to make money. Your Post-It Notes shouldn't exceed what you make in a month. Now, they understand start up costs etc. but your business needs to show a profit in two of the last 5 years. Otherwise, it's called a hobby (something you throw money into). The scam part is then the shady-mcshady people just start a new company up, restarting that profitability clock.....
Anyway, there is a ton of information at the Small Business Administration website, SBA.gov. Don't be afraid to fill out a business plan, it's great ot make goals for yourself!
Federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. You generally have to make estimated tax payments if you expect to owe tax, including SE tax, of $1,000 or more when you file your return. There are two ways to pay as you go: withholding and estimated taxes. If you are a self-employed individual and do not have income tax withheld, you must make estimated tax payments.
SOURCE: http://www.irs.gov/businesses/small/art ... 46,00.html
I don't know what state you are in, you need to check your state laws, too. States are very funny about personal income tax, not a one of them does it like another (I know, being military, I've lived in a handful).
Also, if your husband experiences furloughs in work, be mindful about the amount of money you are making. Finally, remember that you will ALWAYS be responsible for your Social Security and Medicaid taxes. When you are employed by another, they pay half of those. When you're self-employed, you are stuck with the full 13% or so (I can't remember the exact number, it's higher than I thought before I started working for myself!). If you decide not to pay quarterly tax estimates, it wouldn't hurt to stash away 15-20% of your earnings, especially your first year, just in case......
Oh, and if you're tempted to not count your freelance income for federal income, and yes, there are people who get away with it, audits check bank accounts. You'd be hard pressed to explain regular payments into the family account. It is wise to have your own bank account, even if you just keep it with Paypal, so the money is clear. The filing threshold is $400 I believe, meaning if you make more than $400 over the year, the government wants to know about it. Finally, one piece of advice I was given at the Small Business Administration seminar is profitability. Many people set up "businesses" just to write off thinly-veiled non-business expenses: i.e. my family took a trip to Disney World, I wrote a $20 article about it, I can write off $3,000! Yeah, it doesn't work like that. Now, you took a trip to Disney World, you ate at three eateries and wrote about them so you wrote off the cost of YOUR meal alone, and oh yeah, kept the receipts. That is more reasonable, especially if you priced the article for more money than the price of the meals. I did this with a recent video game, I purchased it with money from my business account, so the transaction is there, we played it, I wrote three articles about it, and we turned it in as credit towards a new game. Bottomline, the IRS wants to see a business that is in the habit of trying to make money. Your Post-It Notes shouldn't exceed what you make in a month. Now, they understand start up costs etc. but your business needs to show a profit in two of the last 5 years. Otherwise, it's called a hobby (something you throw money into). The scam part is then the shady-mcshady people just start a new company up, restarting that profitability clock.....
Anyway, there is a ton of information at the Small Business Administration website, SBA.gov. Don't be afraid to fill out a business plan, it's great ot make goals for yourself!
Re: concerned about taxes
Wow, this information helped me so much! Thanks! I am used to writing for Demand Studios, and they provide a 1099 at the end of the year. However, I enjoy writing in the capacity of CC so much more so far. It seems much more freeing and I feel like the content is higher quality here, which makes me feel good about building my reputation here as a writer.
I have a quick question regarding payments that I hope someone might answer for me. I know that we can receive payments via a wire transfer to our bank if we make over $500 in a month. Is there a way to go ahead and upload our banking information so it is readily on file with CC, or do they just contact us for the information if our earnings qualify for a wire transfer? Thanks to anyone reading this!
Sheena
I have a quick question regarding payments that I hope someone might answer for me. I know that we can receive payments via a wire transfer to our bank if we make over $500 in a month. Is there a way to go ahead and upload our banking information so it is readily on file with CC, or do they just contact us for the information if our earnings qualify for a wire transfer? Thanks to anyone reading this!
Sheena
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Celeste Stewart
- Posts: 3528
- Joined: Sun Jan 08, 2006 5:28 pm
- Location: California
- Contact:
Re: concerned about taxes
The wire transfers were put into place back before CC used PayPal's mass payment feature. Back then, writer's had to pay 3% in PayPal fees. So, if you had $1000 in sales, you'd have to pay PayPal $30 in fees. If you had $3000 in sales, that was $90 in fees -- just to get paid. So, CC offered wire transfers if you earned $500 or more. CC charged us about $15 per wire transfer which was a wash at $500 but a bargain when you had several thousand bucks coming your way. Today, CC uses PayPal mass payments, so there are no longer any fees via PayPal. I don't know that wire transfers are even an option anymore.
Re: concerned about taxes
Oh okay. Thank you so much for responding!