Working as a freelancer means anything from 60-hour work weeks and big-table meetings to a business-pajama dress code in a home office-livingroom-hybrid that could probably stand to have the curtains opened every once in a while, now that you think about it.
The freedom of freelancing comes with a price: having full responsibility for your taxes. But fear not, dear freelancers! With the right documentation, tax season can be a breeze (or, at least, not a nightmare of frustration and regret). First of all, figuring out how to file your taxes as a freelancer doesn't have to be as daunting as you might expect. Second of all, filing the right documents can let freelancers take advantage of tax write-offs that can mean the difference between a refund check and tax bill. Plus, planning ahead to save the necessary documentation can ease the burden of filing your taxes—and help combat a wave of anxiety and panic come April 15 (or, in the case of your 2019 taxes, July 15).
So read on, my freelancing friends, to learn all about the wild, wonderful world of necessary tax documents!
1. What is a 1099-MISC tax form used for?
This form is the most important, and most common, for summarizing your income and payer information when you file. Clients that pay you $600 or more for the year are required to send you a 1099-MISC form. These forms are by far the easiest way to count your wages, and are a necessary record if you are ever audited. If you don’t receive yours by January 31 (the legal deadline), start requesting them.
2. Should I keep invoice records?
As a freelancer you have to report all of your income, no matter how small. For yearly wages under $600 clients aren’t required to send you an official form, so the burden of accurately summarizing that income is on you. Keep track of every invoice and deposit from an employer, or have a system for setting these records aside in one place. Using an invoicing system like bill.com is an easy way to keep track of the money you bring in, and it will even do the math for you.
3. What is the difference between Form 1040 and 1040-ES?
Form 1040 is where you summarize your income amounts from your 1099 Forms and other income records, as well as your deductions. There are two versions of the 1040: Form 1040 is for the entire previous year, and Form 1040-ES is to file quarterly throughout the current year. If you use an online filing program like TurboTax, they will fill this out for you, but if you’re filing the old-fashioned way, you’ll need to have one of these on hand.
4. Do I need to submit a Form 1096?
If you’re a freelancer who has paid other contract workers, you need to submit Form 1096. This form summarizes the amount you’ve paid out to contract labor for the fiscal year. If you need this form, it is a good idea to keep records of amounts paid out to freelancers in one place. (For the record, Bill.com can do this for you in addition to keeping track of your outgoing invoices)
5. Do I need to provide receipts for my tax return?
Expenses are far more difficult to keep track of than income. You should be saving receipts or bank statements from every purchase made for work, so that you’re not scrambling to search through your banking transactions come filing time. Opening a dedicated business bank account is maybe the best, easiest way to track expenses. If you use your business account for all of your business expenses, they’ll be organized right there on your bank statement.
6. How can I claim deductions on Form 8829?
If you work out of a dedicated home office, you can deduct things like internet, utilities, and furniture you use to do your work on. Even a portion of your rent or mortgage payment might be eligible. To claim these deductions, you’ve got to use the space exclusively for work, so sectioning off a corner of your house for your business is definitely worth the return.
7. How do you calculate business mileage?
If you want to claim business mileage, you have to know the numbers. This is one of the most tedious elements to keep track of, especially if you use your vehicle for business and personal use (which, let’s be honest, often overlaps for freelancers). Get in the habit of tracking the number of miles you travel to every business lunch, supply run, etc. so you can get a mileage reimbursement and even deduct your vehicle maintenance costs for the year. You’ll enter this information on your 1040.
8. What is a 1098-E used for?
Form 1098-E lets you deduct a portion of your student loan interest from your federal return. If you paid more than $600 in interest, your loan servicer will provide you with the form. (If you haven’t gotten the form or don’t know who your loan servicer is, check out the Federal Student Aid website.)