(Ominous music playing in the background….) It’s nearly that time again… Time to get your things in order and pony up to Uncle Sam. Yes my friends, you can’t escape them. Back in your other life, in the corporate world, most all of us had everything all neat and tidy in our paycheck. Someone else did all the figuring of where your hard earned dollars went. Now that you are in the society of freelancing, it falls to you to do that figuring; unless you have a trusted qualified accountant, of course.
For those that, for many various reasons, do not have an accountant handling your finances, this is for you.
As a freelancer, you are considered Self Employed. The IRS qualifies self employment as: An arrangement between parties where the payer has the right to control or direct only the results of work, not what work or how the work will be done. Meaning, as a freelancer, you are not operating under the structure or guidelines of anyone else. You are your own boss. So guess what, Boss. You have some paperwork to take care of.
Many of the tax forms you will be using ask for an EIN. This is your employer identification number. A simple check list at the irs.gov website will help you decide if applying for an EIN is necessary. One of the yes or no questions is, “do you have 1 or more employees?” If you answer yes to this question, you need to apply for the EIN number. (Don’t count yourself) Most freelancers are able to handle all of their tax business using only their social security number. This number is the EIN for those individuals.
Self employment taxes, SE, are paid on any amount over $400.00. SE taxes must be paid regardless of age or if you are already collecting social security or Medicare. The tax is allotted in two parts, 12.4% towards social security and 2.9% towards Medicare. Everyone has to pay the 2.8% towards Medicare. For the year 2008, only the first $102,000 is subject to the social security tax. Visiting IRS.gov will allow you to view all current tax laws and procedures.
Your income taxes must be paid quarterly. These are estimated and can be paid weekly, bi-weekly or monthly. By paying in this manner, you can avoid having to come up with a large sum of money every 3 months for your quarterly taxes. The government has an electronic federal tax payment system, EFTPS, that allows you to manage and view your quarterly tax contributions at any time. Nonpayment of estimated quarterly taxes can become very costly. The interest and penalties add up very fast.
Every freelancers business had different facets and mechanics. If you think doing your own taxes might be somewhat more involved than you originally figured, IAC Professionals is a company that will take good care of all your financial needs, or you can go check out www.irs.gov to read all you need to know about handling the financials of your corporate freedom on your own.