Freelance and the law

[CurvKyle]

Florida

My line of work is web design. I work for a small company as well as freelancing. The company I work for isn't going to be taking any taxes out so I think the IRS will be doing that. What I would like to know is this; What percentage of my income goes to the IRS? As a freelancer I hear its pretty high, but working for a company i'm told it's lower. Most my money is made through the company i work for though. I do this because I have been told it will cost less come tax time. If anyone knows about this please inform me. I am very unfamiliar with tax laws so forgive me if I sound ignorant.

 

[Sam111]

You will receive a 1099 for income received from the company. File schedule C with your 1040. Combine the income you received from the company and freelance work. If you do your work at home and have a room exclusively used for your business, you can deduct a portion of your utilities, mortgage interest, home insurance, rent, etc.

Since social security and medicare taxes are not withheld from your income, you will pay for them through self-employment tax, which will be 15.3% of your net income. If you were an employee, your employer would be paying half of that for you.

It will not cost less come tax time, it will be more.

You really should be paying estimated quarterly tax to the IRS or you may owe a whole bunch plus penalties when you file your return.

 

[CurvKyle]

Thanks. What kind of penalties? and if you know, why?

 

[Snipes5]

If you are an employee of the company, you should receive a normal W-2, not a form 1099. I would check into this before the year is out, it makes a big difference.

If you are indeed an employee and they are not withholding SS & Medicare taxes, and are not paying their portion of these taxes in your behalf, they are in violation of the tax code. Also, if you an employee, income from that is considered wages, and does not go on Schedule C.

Your situation has too many variables to be adequately resolved via a message board. See a tax professional in your area. If you try an H&R Block office, advice is always free. Ask to see an Enrolled Agent. He or she can advise you on how best to deal with your situation, and give you more specifics on penalties and interest.

It is possible that you may be liable for penalties due to underpayment of taxes, but we don't have enough information here to answer that for you. Bring your 2003 tax return with you when you go to see the Enrolled Agent, and also bring income information for 2004.

Snipes

 

[CurvKyle]

I also wanted to mention...

The clients I do freelance work for never ask me for my SS#. So I suppose they are not using this as a tax write off. Does that still require me to pay taxes on it or...

thanks

 

[Snipes5]

The companies you do freelance work for do not need your SSN. They merely need to have your name or the name of your business, to keep a record that they paid you X dollars.

So no, there is probably no "matching" program on this by the IRS, but you ARE still required to report it.

Snipes