I just finished printing out the returns for my Federal and State taxes. I use TurboTax.com and usually this process is quite easy, but this year it was quite irksome. This year, unlike other years, I did a bit of freelance work on the site (until I realized that was waaay too draining on top of a full time job and girlfriend and life not to mention horrible for the carpel tunnel). This freelance work, for which I got a 1099 made things soooooo much more complicated. Apparently freelance income needs to be filed under some sort of independent company or something and TurboTax led me through this whole Schedule C thing. I have no idea what was going on and I am sure that things could have been done better. And, on top of being complicated and tiring, the 1099 which did NOT have taxes taken out originally cut my tax return in like half (I guess those income taxes were finally being taken out).
Well, at least it's all done for this year. I think the moral of the story is NO MORE FREELANCE work.... unless of course I get paid on the sly in cash.... or baked goods.... or a free gym equipment.
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Hmmm... I'm in a similar situation but was paid in cash. Not sure what to do about taxes yet. Was paid by an individual so thought it might not be necessary to report the fairly small amount of income. However, he just recently created an LLC for the venture so seems much more official now.
I'm in the same boat with you on freelance work. Everything was fine for awhile as my job generally isn't demanding outside of m-f 9-5. However I just started going back to school part-time with a decent load, newly engaged and helping with planning wedding this summer. Suddenly I have no time to do anything but maintenance tasks on the freelance project.
(Read: "Yep, me too!")
If I've learned anything over the years, it's that you don't mix freelance with a real job. It's like having a wife and a mistress, and as exciting as it may be for a short time, it never ends well. Either commit to going completely over to contract/freelance work, or stick with your day job and enjoy the time away from the computer.
The Schedule C process is very important when you have received 1099 forms totalling any remotely large amount of money. That is money that taxes were not taken out on and money that you earned as a contractor (self-employed).
The deficit of the situation is that money is taxed at almost double your normal (W-2 rates), but the positive is that you get the ability to write off any of your expenses as they applied to that work, whether it be phone bills, meetings with clients, etc.
So you might want to take advantage of that via filing a fixed return if it will make a significant amount of difference after you think about it.
With the schedule c, I thought this only applies if your deductions will be greater than your standard deductions.. Meaning if I didnt have a mortgage the standard deduction would be the way to go because all of my itemized deductions wouldnt be greater than that..
Gotta love Florida.. no state tax!
OK now the serious comments.
Ben, do yourself the favor and don't use TurboTax, go to an accountant and pay the money to have them do it. I personally have a full time job, I'm a silent partner in 2 companies, and do freelance work all the time. There is no way I would do my own taxes on TurboTax, I would be screwing myself.
In case you didn't know this, you have to pay quarterly payments on any money you make as a 1099, so you need to have a 1040ES. You can get really screwed if you don't make the payments.
A good piece of advice is to open up a separate checking account and put 33% of all the money you make freelancing into it. Then when it comes time to make your quarterly payment, you just look to see what in that account and send a check for that amount to the IRS. This will also help so you don't spend the money and then panic when you have to make a $6000 quarterly payment like I just did.
Another good tip is to make sure you incorporate yourself as an LLC so that you have protection in case some sues you.
Ha ha, good point. Less freelance work, more hiking.
@Mike / Schedule c,
See, that's part of the problem. It wasn't very much money at all! That's part of what made it so frustrating. On top of that, I had like no expenses that the work. :(
Damn you Florida... damn you! ... but that is some good advice. My brother keeps wanting me to become LLC. It sounds cool and quite official. When my life calms down I will definitely look into it. From what I remember, it wasn't an insane process.
I agree with Tony. Self employment / freelancing gives you some freedom, including the ability to deduct expenses if you make enough money, but the additional tax that your employer normally pays for you must be covered by you individually since you're the employer now!
Essentially, you're paying a 15% premium I think. It's called Self Employment (SE) tax. Whatever you do, make sure to add that 15% into your rate! And pay quarterly. Trust me...I had a $13k bill a few years ago!
Oh, and if you get a 1099 you definitely need to report it because that means the IRS is aware of it too. Trust me, you'll pay tax on that money one way or another.
That's also what I figured (re: the IRS knowing about it since it's a 1099). Not that I am trying to be dishonest, but it just wasn't very much money!
yes, yes it is nice not paying state tax. have i made you jealous yet? :)
getting incorporated is nothing hard. actually here in florida (another cool thing about this state) you can file for a LLC right over the internet: https://efile.sunbiz.org/corpweb/efiling/onlmenu.html
personally I just pay the lawyer the $600 and he does for me. It takes about 2 weeks.
do yourself the favor, don't be lazy and call a lawyer to have then start on it right now. if you don't do it now, another year is going to go by and it still won't be done and you won't get the tax breaks or the protection that you deserve.
Yeah, good point. Why put off what you can do today. I will talk to my brother; I think he wanted me to use his lawyer.