Being your own boss sounds exciting, but it comes with its fair share of new responsibilities. For example, you’ll often have to pitch potential writing clients, chase overdue invoices, and market your services on social media.
And one particularly challenging task you’ll have to carry out is filing your own freelance taxes – it involves you sifting through receipts, crunching numbers, and filling out multiple IRS forms. Unfortunately, you can’t avoid it as it’s a crucial part of running your business.
In this guide, we’ll walk you through how to file freelance writer taxes and give you some examples of the deductions you can claim.
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In the eyes of the IRS, freelance writers are independent contractors. And as an independent contractor, you have to pay self-employment taxes if you earn more than $400 in a calendar year.
The self-employment tax rate is 15.3%. It represents 12.4% in Social Security tax and 2.9% in Medicare tax. So, if your net income from freelance writing is $1,000, then you’ll need to shell out $153 in self-employment tax.
If you work as a W-2 employee, then self-employment tax is split between you and your employer – you each pay 7.65%. Your paycheck is typically less than the money you really earned. The reason why? Your employer withheld part of your income for Social Security and Medicare taxes and then sent it to the government.
As an independent contractor, the entire burden for handling self-employment tax falls on you. Luckily, though, the IRS allows you to deduct 50% of the amount you pay as an income tax deduction. For instance, if your self-employment tax payment is $,1500, then your taxable income will reduce by $750. If you’re in the 25% tax bracket, then you’ll save $187 in income taxes. This is an above-the-line deduction and you claim it whether or not you itemize deductions.
Note that you have to pay self-employment tax in addition to the standard income tax that most taxpayers owe.
Freelance writers who expect to owe the IRS more than $1,000 in taxes in a year need to pay their taxes in 4 installments. You’ll need to pay estimated taxes four times a year instead of once a year like most taxpayers.
Estimated quarterly taxes help ease the tax burden of self-employed business owners. Instead of paying everything all at once when you file your taxes annually, you can separate your big tax burden into four parts.
Note that if you make a late payment, the IRS can penalize you. That’s why you need to know the due dates for the entire tax year.
Here’s when the estimated tax payments are due for 2022 tax season:
Typically, the due date for making quarterly payments is on the 15th of April, June, September, and January. But if the 15th falls on a weekend on holiday, the deadline for quarterly tax payments is pushed to the following business day.
Here are the IRS tax forms that freelancers need to deal with:
Form 1099-NEC is used for reporting non-employee compensation. The IRS defines non-employee compensation as any payment made to an individual – who’s not on payroll – to undertake a specific project.
Non-employee compensation includes any of the following:
That said, here are a few things you should know about the IRS Form 1099-NEC:
Here are detailed instructions to file a 1099-NEC.
Schedule C is used to report a business’ profit or loss. Freelance writers should fill out the form and attach it with Form 1040.
You should use this to report any revenue your business generated as well as the expenses you incurred when running your business. After reporting these two figures, you can easily determine your net profit.
Your net profit is the figure you obtain after subtracting your total business expenses from your total business income. After figuring out your net profit, you can then report it as income on Form 1040.
Here are instructions to file a Schedule C.
Schedule SE is an IRS form that allows you to determine how much self-employment tax you owe the IRS. It is one of the several schedules of IRS Form 1040 – a form that allows you to file your individual tax returns.
After calculating your self-employment tax using Schedule SE, you’ll report this figure on another Form 1040 schedule – Schedule 4 (line 57).
If you earn at least $400 in self-employment income in a year, then you need to use Schedule SE to report this income and pay quarterly taxes – even if you’re already getting Social Security or Medicare benefits.
That said, you can’t include income from any of the following sources as self-employment income:
Freelance writers often overlook some of the tax deductions they can claim because of the demanding nature of their work. Some of these deductions include the home office deductions, subscriptions, travel expenses, unpaid invoices, online presence fees, depreciation of equipment, and depreciation of equipment. Check out our full list of freelance writer tax deductions here.
In your line of work, you mostly spend your time at home working. So the home-office deduction is probably the biggest write-off you can claim as a freelance writer.
You can deduct a portion of your rent that is equal to your home office’s percentage of space compared to the total size of your home.
For instance, if your home office accounts for 20% of the size of your home, then you can write off 20% of your home.
The IRS, however, has specific rules for claiming this deduction:
What most freelancers often overlook, though, are the expenses they incur when maintaining their home office. Note that anything you purchase to maintain or improve your home office is tax deductible.
To produce your best work, you’ll need some helping tools. Grammarly and Hemingway, for instance, can help simplify your work when writing. The money you pay to subscribe to such tools is tax deductible, as long as the tool is necessary for your line of work.
Sometimes, you may need to travel to meet a client, conduct an interview, or attend an industry event. Any costs you incur – which include expenses for flights, car rentals, or hotel rooms – are deductible when you file your tax return. That said, if you decide to also go on vacation during your business trip, you can only write off the portions of the trip that were related to your business.
This deduction often goes under the radar, as most freelancers don’t know they can deduct the losses incurred due to unpaid invoices. If you provide your writing services to a business and they fail to pay you, you can write off the unpaid invoice as bad debt. Typically, this goes on Line 6 of Schedule C Form 1040.
There’s a catch, however. For you to write off unpaid invoices, you need to have claimed this as income.
As a freelance writer, almost half of your work involves you promoting yourself on various channels. Potential clients need to easily find you so that you can never run out of paying work.
That said, the costs of advertising yourself on social media and setting up your freelancer website are deductible when paying taxes. This means that if you pay for LinkedIn Premium or subscribe to MailChimp, you can deduct the cost you’ve incurred at the end of the year.
Website expenses such as the following are also deductible:
According to the Internal Revenue Service, depreciation refers to the decline of an asset’s value. What most freelancers don’t know, though, is that depreciation is a deductible expense.
In the past, self-employed business owners could deduct a little bit of an asset's value over time. But Section 179 now allows you to write off the entire purchase price of equipment instead of depreciating it with time. This allows you to significantly reduce your tax bill.
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?