January is National Hobby Month. It also marks the start of tax season. So, that makes now a good time to ask yourself whether your hobby has actually become a profession.
Maybe you do freelance photography in your spare time or pick up paid writing assignments on weekends.
If so, you may want to talk with your tax preparer about taxes for freelancers and deductions for which you may qualify.
Self-Employed Tax Deductions
Deductions for freelancers can include, but are not limited to:
- client meetings for networking purposes
- home office expenses
- a percentage of your monthly bills
- research expenses and book purchases
- fees associated with payment systems such as PayPal or Western Union
- bad debt, which is most often assumed with unpaid customer invoices
- transportation costs or business travel expenses
- insurance costs
- advertising for the promotion of your brand
Most freelancers need Forms W2 and 1099 to file taxes. If you earn more than $400 in taxable freelance earnings, you must file a tax return because you are subject to self-employment tax. Your earnings can be determined by subtracting your business expenses from your income. For example, if you made $700 and had business expenses of $100, your taxable earnings equal $600.
If you find that you owe the IRS a large amount, it may be wise to begin making estimated payments for next tax year. This will help you avoid interest and fees that often tacked on to tax debt not paid to the IRS on time.
Resources for Freelancers
- IRS Publication 15 offers details on how freelancers, or those who are self-employed, are taxed.
- This Tax Interview Checklist gives you an idea of which documents you should begin organizing and saving.
- If you’re interested in turning your hobby into a small business, check out our earlier blog, Small Business 101: Getting Started.
For more information on how you or your business may be affected during tax time, visit a tax professional.
Disclaimer: Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.