Whether you are seasoned or new to independent contractor work, graphic designer taxes are still a part of life. Insert the eye-rolls and the procrastination we all go through when it comes to our taxes. Instead of panicking or stalling though, take control of them, like a boss.
Yes, being your own boss can be a bit scary, especially when it comes to filing your taxes. Unmasking the monster always made things better as a kid, so let’s break down how to pay taxes as a freelancer.
Freelance graphic designers must file a 1099 tax return. Freelancers are considered business owners. These graphic designers are subject to income tax and self-employment tax and must use a Schedule C form with their personal taxes.
Read this quick guide to get an overview of what to expect, how it all works together, and what you need.
Note: Bonsai Tax is a software designed to make freelancer taxes easy. If you are looking to track expenses, get notified for deadlines and estimate your quarterly taxes all in one place, try a 14 day free trial of our app. Users typically safe $5,600 by using our software.
First, gather all the information about you and your business you may need to file your taxes.
These are the basics. On occasion, there will be documentation you need to seek out. Some of these documents may be e-mailed to you, retrievable online, on a website, or stored on some kind of software.
Let’s get to know some of the forms you may need with your freelance business and how they help us.
Think of these forms like a buffet; you start with a plate, right?
The plate, so to speak, is tax form 1040.
The 1040 form is used for personal federal income tax returns filed by residents of the United States. In other words, Form 1040 is used to calculate your taxable income and exactly how much tax is owed on that income.
Every year, employees and independent contractors must complete and submit a 1040 tax form by the tax deadline.
The other forms are additions to better reflect specifics to various tax situations and correlate with the 1040.
This is the main form you need as a freelancer. This is where you report profits and losses regarding your business.
This is not only where you report business gains, but a place to show your expenses (Losses) or tax deductions.
The 1099-NEC is a form a client or business may send graphic designers showing the amount they paid for your work.
A 1099-NEC is not a W2 or a Schedule C. The 1099-NEC is used to report non-employee compensation. Stay on top of the 1099-NEC deadline to avoid any unnecessary fines or penalties.
A client or business is not required to send a 1099-NEC if they didn’t pay a designer over $600. So freelancers won’t receive a 1099 under $600. This means you’ll need to track your business income, write it down, and stay organized.
Records are vital and will keep things clear and simple.
A 1040-ES is just a prediction about what your taxes are going to be for the year. This is a way to stay ahead of your tax bill and estimate as well as make payments for what you may owe. A graphic designer needs to pay taxes quarterly in order to not get a surprise penalty when filing during tax time.
There are tons of other forms available for just about anything you need to tell the IRS about your business. These are just the basics of what a freelance designer may need.
Now that we know the forms, Let’s talk about business expenses and quarterly taxes.
Social Security and Medicare Tax are rolled together basically as a payroll tax required through the Federal Insurance Contributions Act (FICA) or the Self-Employed Contributions Act (SECA).
Both employee and employer contribute, essentially splitting the bill.
As a freelance Designer, you are both employer and employee; let’s check out how that works.
The Self-Employed tax rate is applied to your net earnings at a rate of 15.3% on up to $142,800 as of 2021; after that, the social security portion is capped.
Any earnings of more than $142,800 are still taxed for the medicare portion at 2.9%, as there is no limit on medicare tax.
There may be an addition of 0.9% medicare tax on earnings of $200,000 or more for a single filer or $250,000 or more for joint filers. You can use our online self-employment tax calculator to total up your tax liability for the year.
The U.S. has you pay taxes throughout the year instead of all at once. You can calculate your quarterly tax payments by taking your total tax liability (self-employment taxes, income taxes, etc) from the previous year and dividing that number by 4. Be sure to send the correct amount to the IRS. If you pay less than your expected amount or make uneven payments, you may receive penalty for tax underpayment.
Quarterly taxes are broken down into four sections (quarters); each quarter is four months.
So, the due dates for quarterly tax payments are:
You can send payments directly on the IRS’ website via Direct Pay. This makes tax payments more manageable throughout the year for your graphic design business.
Like anything related to taxes, there are various calculations, requirements for anything deductible expenses, and forms.
Yes, that can be intimidating. Luckily, you don’t have to fill out every form available.
Think of these forms as an opportunity to save you money or lower your payments.
This is where we start to deduct. These adjustments are the first steps to reducing and calculating your taxable income or Adjusted Gross Income (AGI).
AGI is your gross income (Total Income) minus the adjustments like credits and above-the-line deductions. AGI is the amount of your income that’s taxable and the amount used to determine your tax bracket.
Pro Tip for Form 1040: no matter what year, the AGI is on the line labeled ‘Taxable Income’. Keep track of your AGI. It may be used for financial business, accessing prior returns, even Identification.
Below the line tax deductions are anything you deduct after the AGI (Taxable Income).
Some Examples of Below the Line Tax Deductions are:
Note: If you would like an app to track all your deduction for you, click here to claim your 14 day free trial of Bonsai Tax. Our tax software will organize and categorize your tax receipts to help you maximize your tax savings. Users save an average of $5,600 from their tax bill by using our app.
Being an independent contractor doesn’t disqualify you from leveraging tax credits. A tax credit is a type of tax break that allows eligible taxpayers to deduct the amount of the credit from the total amount they owe the state. Always check for any deductible credits.
If you have any questions about claiming a tax credit, we always recommend you seek the advice of a tax professional
Taking advantage of deductible business expenses on your tax return, even just a percentage, can have a significant impact on how much you may have to pay.
Like if you work from home, the home office deduction is an excellent write-off. Even rental expenses, like an apartment, may still be deductible.
Keep in mind, only a percentage is claimed on some tax write-offs. You'd want to organize your tax receipts for:
Check out our full list of graphic designer tax deductions available for freelancers.
Only deduct your costs of doing business. These expenses are only tax-deductible as long as a client hasn’t already given you money for your business-related expenses. Don’t double-dip. This means it can’t be a tax write-off if the expenses or fees were reimbursed to you already.
If you are looking for an app to automatically scan your bank account/ credit card statements and organize your tax deductions, try Bonsai Tax’s 1099 expense tracker. Our tax software categorizes all your business expenses for you and maximizes your tax savings.
If you are looking for a free way to track your expenses, try our free excel template to track 1099 expenses.
Now that we have gone over the basics, we can deduct the jargon; you have a clear view of what’s ahead. Not so scary, right!
Always remember, you have come this far by taking charge of your career path and being brave enough to build your own business.
Don’t let the IRS scare you, plus you already have someone in your corner with Bonsai. Supporting freelancers is what they do and who they are; signup for a Free trial with Bonsai today. You are a boss, but you don’t have to manage your taxes alone.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?