Tax Tips For Self-Employed Writer
For many people, Textbroker is their first foray into freelance work or self-employment in general; as giddy as earning money through writing may be, there’s one thing that you can’t overlook: taxes. Below, meaghan will share a few of the best tax tips for freelancers. Please keep in mind that she is not a tax professional; use this advice as a starting point.
As evidenced from comments on this blog through the past several months, it’s clear that people use Textbroker in a variety of different ways. Some people earn the majority of their income by filling orders on the site; I know I do. Others write for Textbroker in order to earn a bit of extra spending money, or to supplement their income from a regular job. For many people, Textbroker is their first foray into freelance work or self-employment in general; as giddy as earning money through writing may be, there’s one thing that you can’t overlook: taxes. I’m fortunate enough to have a father who has done a lot of freelance work throughout his career. He currently owns his own business and is very familiar with all of the mind-numbing calculations that go along with paying the IRS as a self-employed person. He’s helped me out a lot, has saved me oodles of money and loads of frustration, and I’ve picked up quite a few tips and pointers from him in the year that I’ve been writing for Textbroker. Below, I’ll share a few of the best ones. Please keep in mind that I am not a tax professional; use this advice as a starting point.
- Normally, employers withhold your taxes for you; things like Medicare and Social Security are automatically withheld. As a self-employed person, you are responsible for withholding that money – and sending it along to the government – yourself. In the U.S., the self-employment tax is currently 15.3% – this includes employer and employee contributions. You must withhold this money from your earnings in addition to the regular income taxes that you are responsible for. More information is available here.
- If you don’t have a savings account, get one. I do all of my banking online, and my bank lets me transfer funds from my checking account to my savings account and vice-versa. Every time that Paypal payment comes through on the 6th or 21st of the month, I automatically transfer a certain percentage of those earnings to my savings account. I tack on an additional twenty or thirty percent to act as a cushion; if it’s not used, it stays in my savings account. The taxes money, however, sits there until the next quarterly payment is due; those due dates fall in April, June, September and January. Each person’s tax situation is different; you can calculate your estimated taxes using the Estimated Tax worksheet.
- The tax worksheet linked to above is a great starting point, and should be sufficient for many people. However, if you have a more complicated tax situation, a regular job or other special circumstances, it’s probably worth it to hire a tax professional to work out the sheet for you. When he’s done, he should be able to give you a percentage that you can set aside each pay period. This is what my dad has done for me, and it’s worked great – my taxes came out without a hitch for 2009.
- I don’t know about your state, but mine – Michigan – does not allow online payments for income taxes. I have to mail them a payment voucher, along with a paper check, every quarter – isn’t that quaint? Luckily, the feds are more “with it” and allow you to make your payments electronically through a special site they’ve set up. It’s well worth it to set up your own account on the site, especially because records are kept for you there.
That’s all I’ve got for today. Next time, I’ll talk about the sweet health insurance deduction that every self-employed person should take – if applicable – and about the Making Work Pay credit that debuted last year. Until then, happy writing!