There are many things that can hold a budding freelance writer back, writer’s block, low pay, and certain pesky bills. However, one thing that often surprises writers after their first year of actually earning some money is how complicated filing their taxes suddenly became.
For example, let’s just say for my first year as a freelance writer I didn’t do too badly. I made more than $5,000 but less than $10,000–so I’m still way under the poverty limit but can actually earn some cash with this writing thing. Kudos, as well, to all the other budding writers who found out this year that they’ll be able to file taxes as sole proprietors.
When Should I Start Filing
You’ll need to start filing your income as a freelance writer when you reach about $400 in earnings. That is not after deductions, it’s gross earnings. When you take all of your deductions its likely you won’t have a tax bill, but the IRS still wants a record of the earnings by the point you’ve earned few hundred dollars in one year.
The only tax form you can use to file as a sole proprietor, which is what you start out as when you become a freelance writer, is the 1040. This is in addition to a few other forms. Here’s basically what’s required to fill out as a sole proprietor:
Schedule C or Schedule c-ez
If you hired someone else during the year to do work for you, you’ll need to fill out some additional forms and schedules that aren’t listed. Do your research at IRS.gov. This article just gives the basics for a writer who’s earned enough to file as a sole proprietor and is taking basic deductions for use of the home for an office and various office expenses. Everyone’s needs for filing their taxes are unique.
By the way here’s a link to Writer Unboxed which has a post filled with lots of informational links to articles on tax time for writers.
So the 1040 is essential because it’s the form where you report all the results from filling out the attached schedules and figuring the taxes for the year.
Schedule C, which is where you would basically report your income as a writer. You report the results from here on Schedule SE.
Schedule SE (Self Employment tax) is used to find out how much social security tax you owe on your self-employment income. Since you are working as a sole proprietor your social security will be double, at around 14% of your income. It is less for W-2 earners because their employers pay half of the tax for them.
Schedule A is used to itemize deductions on your income as a writer. If you purchased any new office equipment to use partly or completely in your work you’ll need to fill out Form 4562 to figure how much of the cost of that you can deduct from your income. Then you’ll report the results on Schedule A.
Tip: Form 8829 can be a big help in reducing your Self Employment tax for the year. It’s the form you fill out to get a deduction for business use of the home. Warning it is a .pdf document.
Fill out Form 8829 and put the resulting deduction on line 30 of Schedule C, which is how you calculate the profits or loss of your small business for the year. Deductions are your friends!
A lot of readers have probably heard that it’s best that a writer incorporate when they start earning over a $100,000 a year because it saves them a lot of money in taxes.
Well, it’s true. If you set up a C corporation there are about three hundred extra deductions you can take on taxes. But there are a lot of little requirements you need to fulfill, so it is really best to wait until you begin earning a lot more before setting up said corporation!
You can find some very helpful Tax Form explanations on Wiki. The IRS also has a one-stop resource page for self-employment and small business tax information. The key to muddling your way through your taxes during your first year filing as a sole proprietor is to do your research and start very early.