Keeping up to date with the laws regarding freelance writers and estimated taxes will help you keep your freelance writing business legal. If you are a self-employed writer, you'll be responsible for paying self-employment taxes on the money that you earn from your work. You can pay off these taxes in quarterly payments that are made to cover the taxes on the following tax year. Understanding how much you owe in self-employment taxes and making estimated tax payments is the best way to stay on top of your freelancing financial records.
What are Self-employment Taxes?
Self-employment taxes are owed on any money that you make as a freelancer. When you have a job with an employer, your employer takes care of these taxes in the form of the Social Security, FICA and Medicare taxes. Since these taxes aren't paid by your clients, you'll be responsible for paying them out of your income.
It's important to understand that the money you earn as a freelancer isn't yours free and clear. A portion of that money must be set aside for tax payments. If you don't make a regular habit out of saving part of your income, you'll be in for a big surprise when tax time comes around.
If you aren't comfortable with handling your self-employment taxes yourself, you may want to talk with a qualified tax professional. Speaking an accountant will help you understand the process of paying self employment taxes and handling estimated tax payments.
Look for small business tax workshops in your area that you can attend to get information about doing your own taxes. You can also find many guidebooks that will help you understand paying taxes as a self employed person. Even if you do decide to use an accountant to complete your taxes, getting educating on the subject will help you understand where your money is going.
Freelance Writers and Estimated Taxes: Paying Twice
Understanding the relationship between freelance writers and estimated taxes starts with understanding that money earned as a freelancer is taxed twice. Your writing income is taxed as income, but it is also taxed because you are self-employed.
Rather than waiting until the end of the year to pay a large tax bill, freelancers have to make payments on their estimated taxes for that year. Each quarter, they make smaller payments so that their tax burden isn't due all at once.
Even if you think that your taxes will be less than your refund, you may be required to pay installments because of the nature of your business. The IRS can issue penalties if you make insufficient quarterly payments or if you don't pay the installments on time.
Estimated tax payments are due four times during the year. They are paid on April 15, June 15, September 15 and January 15. For example, the first estimated tax payments for the 2010 tax return are due on April 15.
Calculating Estimated Taxes
You can estimate your taxes throughout the year by looking at your monthly income statements or even calculating your taxes per job. If you use the either method, you'll always be able to pay your installments because you won't spend the money that you need to set aside for taxes.
Use a spreadsheet and refer to the IRS Schedule SE to determine the rate of withholding that you should use on payments received. The schedule will show you exactly how much to multiply your income by to arrive at your tax rate.
When you use this method, you are estimating your taxes and the figures won't be exact. They don't take into account the expenses that you pay during the year to be a freelancer, including your Internet connection, educational materials and other business expenses. Using this method will help you handle your taxes more efficiently and, best of all, legally.