Lots of people work freelance jobs these days and that can make a difference when it comes to tax time.
Financial Expert Paul Hood stopped by News On 6 to talk about how freelancers can be ready.
Q. Why is the tax situation for freelancers more complicated than for those with a regular wage or salary position?
A: According to Paul Hood, about 90% of the Internal Revenue Code is written for people in business for themselves. The tax code is designed to encourage entrepreneurship and risk-taking, so freelancers can take advantage of more deductions and write-offs compared to traditional employees.
Q: What are some of the key deductions and tax benefits that freelancers can take advantage of?
A: Some of the key deductions for freelancers include:
- Home office deduction, which allows them to deduct a percentage of expenses like landscaping, repairs, and utilities.
- Deducting miles driven for business purposes, as the home office is considered the “workplace.”
- Turning lifestyle expenses like remote work costs, entertainment, and clothing with logos into tax-deductible business expenses.
Q: How important is it for freelancers to document their expenses throughout the year?
A: Documenting expenses is crucial, as the IRS requires proof of the validity of deductions. Freelancers need to use special tax forms like Schedule C and Schedule SE to properly report their income and expenses.
Q: What Are the quarterly filing requirements for freelancers?
A: Quarterly filings for freelancers are not four times a year, but rather every three months. If there is a significant increase in income in the fourth quarter, freelancers can consider annualizing their income to avoid penalties for underpayment.
Q: What advice would you give to freelancers to help them navigate their complex tax situations?
A: The key advice is to be diligent in documenting expenses throughout the year and to work closely with a tax professional who can guide them through the various deductions and filing requirements specific to freelancers.
Source: Money Talk Q&A: Freelancing & Tax Guidance
