Money Talk Q&A: Freelancing & Tax Guidance

Lots of people work freelance jobs these days and that can make a difference when it comes to tax time.

Financial Expert Paul Hood stopped by News On 6 to talk about how freelancers can be ready.

Q. Why is the tax situation for freelancers more complicated than for those with a regular wage or salary position?

A: According to Paul Hood, about 90% of the Internal Revenue Code is written for people in business for themselves. The tax code is designed to encourage entrepreneurship and risk-taking, so freelancers can take advantage of more deductions and write-offs compared to traditional employees.

Q: What are some of the key deductions and tax benefits that freelancers can take advantage of?

A: Some of the key deductions for freelancers include:

1. Home office deduction, which allows them to deduct a percentage of expenses like landscaping, repairs, and utilities.
2. Deducting miles driven for business purposes, as the home office is considered the "workplace."
3. Turning lifestyle expenses like remote work costs, entertainment, and clothing with logos into tax-deductible business expenses.

Q: How important is it for freelancers to document their expenses throughout the year?

A: Documenting expenses is crucial, as the IRS requires proof of the validity of deductions. Freelancers need to use special tax forms like Schedule C and Schedule SE to properly report their income and expenses.

Q: What Are the quarterly filing requirements for freelancers?

A: Quarterly filings for freelancers are not four times a year, but rather every three months. If there is a significant increase in income in the fourth quarter, freelancers can consider annualizing their income to avoid penalties for underpayment.

Q: What advice would you give to freelancers to help them navigate their complex tax situations?

A: The key advice is to be diligent in documenting expenses throughout the year and to work closely with a tax professional who can guide them through the various deductions and filing requirements specific to freelancers.