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Getting paid to write is amazing, right? For many, it's a dream come true…until it comes to trying to figure out how to do your taxes when you work from home.
When it comes to income taxes, working as an employee makes that part easy: fill out the form correctly, go to work, watch the government take out part of your income straight from your paycheck. Your employer withholds and pays the government through the year based on the information you provide regarding dependents and your choices for additional withholding, health insurance, etc.
One of the downsides to freelance writing or blogging for a living is that no one is withholding any of those taxes and paying them to the government: we're expected to do it all ourselves. Navigating the ever-changing tax laws, figuring out deductions and credits, calculating profits and earnings, and paying that bill to the IRS.
Because the last thing you want is to wake up to a letter from the IRS saying you owe them more money than you have.
Thankfully, trying to figure out your taxes doesn't have to be a nightmare. And there are plenty of helpful tools available across the Internet to make it just a little easier on you.
8 Tips to Do Your Taxes when You Work From Home
1. Find Out What You're Paying
The first year I had to file taxes after I started working from home, the terminology alone confused me. Self-employment tax? What is that? Is that an extra tax? I have to pay extra taxes simply because I work from home?
Of course, that's not true. Self-employment tax is simply a combination of both your Social Security and Medicare taxes – which is also something automatically withheld and paid for by your employer when working a traditional job. But now that you're working from home, you need to pay these yourself.
Knowing how your taxes break down and what they pay toward really does help with your saving and filing (and keeps you from flying blind). You'll be able to find out exactly how much you should be paying for what, which you can then plan and save for.
2. Meet with a Human Tax Professional
Unless you really understand all the nuances of the tax laws, it's better to start with a human who can help you navigate the filing process. Don't get me wrong, I love automated tax preparing services like H&R Block and TurboTax as much as the next person…but those services only guarantee that they will calculate everything correctly.
If you make a mistake entering something in or if you miss something, or even if you just misunderstand the question these forms are asking, there is nothing you can do about it. By entering the information, agreeing to their terms of service, and signing those returns, you're accepting responsibility for their accuracy.
3. Make Sure your Human Tax Professional Knows What you Do
It won't do you any good to just go to any tax professional: there are far too many specialties and laws that affect people in different ways. Your best bet is to go to a tax professional who specializes in (or at least has a very deep understanding of) exactly what you do.
A tax professional with knowledge of freelance writing or blogging (if you have a blog) is going to be able to navigate the laws and credits and ensure you, as a freelance writer or blogger, are able to maximize your return. And that's really the point of going to a tax professional at all: to make sure you are claiming the correct deductions.
If you go to a general tax professional, they will likely be able to help make sure you pay everything you owe and they may help you find some deductions, but there's no guarantee that they will be able to find every single deduction that could help you.
4. Know What to Write Off
Can you claim your home office on your tax return and get a credit? What about your Internet, cellphone, and computer equipment?
According to the IRS: “to be deductible, a business expense must be both ordinary and necessary.”
In other words, that expense would need to be fairly common with other freelance writers and bloggers — not just something you use and find indispensable. Word processor: definitely ordinary and I would categorize that as necessary…Makeup so you can do your accompanying YouTube channel? Probably not.
This is another reason why you'll want to meet with a human tax professional with a deep understanding of your industry. Only they will be able to tell you for certain which of these types of expenses you can write off.
5. Pay your Taxes Throughout the Year…Not Just in April
April 15 is merely the deadline by which all taxes for the previous year need to be paid. But the government actually expects to receive its money throughout the year. This was another thing that messed me up when I first started working from home: I thought estimated payments were simply optional payments you could make to try to stay ahead…I had no idea they were required and that if you didn't make them you could get penalized (even if you ended up getting a refund when you filed).
As a freelance writer or blogger, you'll need to make estimated payments quarterly. But, don't wing it. I know you won't have all the information available to you until the end of the year, but you should have enough to be able to make a smart estimation for how much you owe.
When are your quarterly taxes due?
- January 1 – March 31, due April 15
- April 1 – May 31, due June 15
- June 1 – August 21, due September 15
- September 1 – December 31, due January 15 of the following year
What if you also get a W2?
In 2017, one of my long-time clients hired me on as an employee, which split up my income so that half of it was reported — with tax withholdings and all — via a W2 while the other half continued was still reported by me as a freelance writer.
This change meant that I was now paying at least some taxes through every paycheck.
If you have the same situation (as many freelance writers and bloggers also hold down traditional employment) talk to your tax professional (the human) and find out whether or not you will still be required to make quarterly estimated payments. You may be able to increase the amount your employer withholds (by filling out a new W4) which may cover any quarterly payments due through your contracted income – which would mean no more quarterly payments.
6. Keep Every Receipt Someplace Safe
When I first started working from home, back in 2002, almost all accounting was still done by paper. You saved your receipts in folders, trying your best to keep them organized for a few months before you just started throwing them into any box or file. Then you agonized in April as you tried to remember what each receipt was for and why you saved it.
And if it was one of those receipts where the ink faded or the carbon paper turned dark while in storage? Forget it — not it was unusable.
Now, almost the entire tax filing process can be done online, so it makes much more sense to keep and store your receipts digitally. I use Evernote for this. Whenever possible, I ask that receipts come to my email, they get tagged and clipped up to Evernote where they are saved and stored until I need them. It's almost completely automatic, requiring me only to go in and make some short notes on occasion should anything not be apparent on the receipt itself.
Any paper receipts that I happen to receive, I scan and send them up to Evernote as well.
That way, at the end of the year when I am getting ready to prepare my taxes, everything is filed neatly for me and ready for me to hand over to my accountant. I don't have to hunt for anything. Once everything is filed, I take my receipts from Evernote, file them aside, and create a new notebook for the coming year.
7. Understand How the Tax Laws Affect You
I don't expect that you'll ever be able to understand and recite the various tax laws — not unless you happen to be a freelance writer or blogger in the tax industry (in which case, I doubt very much that you're here reading this right now). However, you should know enough about the law to understand how it affects you.
For example, there's a common piece of advice I hear all the time that you don't have to file taxes unless you've earned more than $600. As you can imagine, this sentence spurs on quite a few questions:
- $600 within a certain time period?
- $600 in total?
- $600 from a single client?
- What if I only earned $603?
The fact of the matter is this: determining whether or not you are required to file taxes is a complicated answer that involved a lot of different variables. There is no cut-and-dry answer. So, if you had a client who paid you to work on a project for them, or if you earned affiliate income from your blog, be prepared to file no matter what your income added up to.
Chances are, if you made that little as a freelance writer or as a blogger, you won't owe anything (thanks to deductions and credits) but it's still a good idea to file.
8. Use the Right Tools to Help you Save and File
When it comes to making those quarterly payments, there are a lot of tools that will help you set that money aside so it's available to you when it's time to pay.
I prefer to use Catch. It's a free app that makes it easy to manage your tax payments. Simply sign up for the free account, fill out the tax survey (takes just a few minutes), and link up your bank account. Catch will then check your bank account for any deposits. You can tell Catch which deposits were income and how much to withhold for you.
Money that you choose to withhold through Catch will be deposited into a separate, safe bank account (which you can also withdraw from should you need to). It really couldn't get any easier. Just make sure you talk to a tax professional, first, so you know that you're withholding the correct amount from each of your paychecks.
Whatever tool or system you choose here, make sure it is one that works for you and that you will stick with. A tool does you no good if it's too complicated for you to use consistently.
Taxes Don't Have to Be Nightmares for Freelance Writers and Bloggers
With the constantly changing laws in the tax world, it's no wonder that the thought of having to file and pay taxes the first time can feel overwhelming. But with proper planning and tools, you'll have a much easier time being able to navigate your taxes than ever before.
Did you enjoy this article? Here are some more posts about freelance writing you might like:
- What's the Difference Between a Ghostwriter and a Content Writer?
- 50 Things you can do Right Now to Improve Your Freelance Writing Site
- Should You Pay Money to Work as a Freelance Writer?
- 5 Social Media Marketing Trends Freelance Writers Need to Watch for (Updated for 2020)
- 6 Ways to Grow your Freelance Writing Business Fast