Tax Time for your Business - 7 Questions Answered!
I know it is not April 15 quite yet, but taxes are something I knew nothing about before starting my freelance business. Like many mistakes I have made in my business, this was again one of them. I finally was able to get in touch with a wonderful tax expert, and since then, I am doing better with my taxes.
This series is going to be broken down into a questionnaire format. There are many questions, from simple to complex that I want to cover. All my information has been researched, though; I am not a tax expert (obviously).
Do all freelance or online businesses have to pay taxes?
Yes, the Federal government requires we pay taxes on all income, whether it from a client or an Etsy store. Though, you have to make over $400 with each client, or you do not have to pay on it. It doesn’t matter if you are not an established business. Any extra income, is extra income.
How much are taxes?
The American Dream is killed by taxes, in my opinion. Be ready to take your gross profit from your business and subtract 20-30% of that for taxes alone. Therefore, be careful with your expenses, especially if you are funding healthcare for yourself or your family.
How come at my regular job isn’t like that?
Well, it is. The difference between your regular job, and this side job, you don’t get taxed on every check.
How can I make it easier and not get hit at the end of the year?
What I do, and I suggest you do, is to take 30% off the top of every single check and put it in a separate account. If you are super paranoid, take 50%, it can’t hurt to have extra in the end. That is why you need to charge the rates you do and make it worth your time.
How do I file taxes?
Working with a tax expert will help you with filing taxes. Though, he can’t do the legwork. You have to get a 1099 form from each and every client. That is why bookkeeping is SO important. You need to keep track, come December on who owes you a 1099 form. Many freelancers have MANY clients throughout the year.
When can I file?
My suggestion is to label a folder for tax information. As the 1099 forms start to roll in, save them. If you have not received a 1099 from your client by January 31, call them to make sure they are sending it.
What if I don’t get an owed 1099?
If the company went out of business, or just doesn’t respond to you, report that income anyway. It can’t hurt to file, even if you don’t have the form to prove it.
Taxes can be quite confusing, but like the rest of us freelancers, you will learn a lot along the way. I hope I could help you in the adventure!
What questions do you have about tax time?