GETTING STARTED How to Adjust Your Withholding Track Down Your Tax Records Your Tax Form Checklist MORE... TAX TOOLS   From TaxCut by H&R Block Will you have to pay the alternative minimum tax in 2004?   Kiplinger Tools How much should I put in my flexible spending account? 2004 survey of state tax burdens Sponsored By:

STARTING OUT
Freelancers, Meet Schedule C
(Page 2 of 3)
by Kimberly Lankford

Which forms to file

When you file your income taxes, you'll need to submit Schedule C in addition to your 1040. You can use the shorter Schedule C-EZ form if you had business expenses of $5,000 or less, had no employees and aren't taking the home office deduction.

If your net earnings are more than $400 for the year, you need to file Schedule SE to figure your self-employment tax, which includes social security and medicare taxes.

You should receive 1099s from clients reporting your 2004 income. That's where you'll find all of the information you'll need to complete these tax forms.

For more information, see Filing Requirements for Self-Employed Individuals on the IRS Web site and Publication 334, Tax Guide for Small Businesses.

What You Can Write Off

Self-employed people are responsible for both the employer's and the employee's share of social security and medicare taxes -- totaling 15.3% of their net self-employment income. (People who are employed by someone else only pay the 7.65% employee share.) Because self-employed folks are hit so much harder at tax time, any expenses you can deduct can make a big difference.

You'll be able to write off many of the expenses from your freelance business, including the cost of a computer, printer and other equipment you use in your work.

Work-related phone calls and mailings, office supplies, copying, advertising, business travel and other expenses are also deductible.

You may also be able to deduct your health insurance premiums if you aren't eligible for health insurance from an employer or your spouse's employer (you can't deduct more than the net income of your business).

Half of the self-employment tax you pay is also deductible.

For more details, see IRS Form 535, Business Expenses.

You may also be able to write off the business use of your home, including a portion of your homeowners insurance, utilities, rent or mortgage interest -- which is more valuable as a business deduction than an itemized deduction. The amount of these deductions is based on the percentage of your home or apartment used for your business. See IRS Publication 587, Business Use of Your Home, for more information about the rules.

 BACK      1  2   3        NEXT