1. Hazel Eyed Scribe
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    Hazel Eyed Scribe Member

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    Freelance and Taxes

    Discussion in 'General Writing' started by Hazel Eyed Scribe, Sep 1, 2008.

    Hey all,

    My question is this: if I am interested in freelancing part time, what should I keep in mind as far as taxes go? Once I am payed for a piece, what percent, if any, must I set aside for the end of the year? If I don't make over a certain amount a year, do I not have to claim anything? Do I have to get a business license? I am currently in the state of California. Are there different percentage rules that I should keep in mind if I work for another state?

    Please help; I would like to do this correctly from the get-go. I know this is a lot to answer but I thought someone in this Forum might have simple answers to these tricky questions.

    Much appreciated, any help would be great!

    Ash
     
  2. stoned4assassin20
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    stoned4assassin20 Member

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    It all depends on how much you make. Most states have an income tax, though seven do not. California has an income tax, so you have to pay that in addition to the federal income tax. Here are the Federal income tax rates for an individual filing as a single (as of 2007).

    $0 – $7,825: 10%
    $7,826 – $31,850:15%
    $31,851 – $77,100: 25%
    $77,101 – $160,850: 28%
    $160,851 – $349,700: 33%
    $349,701+: 35%

    You're taxed this percentage for every dollar earned in that bracket. You would pay only 10% for the first dollar, the second dollar, the third dollar... all the way up to the 7,825th dollar. So, for the first 7,825 dollars, you would need to set aside 10% for income tax. For any dollars earned within the 7,826-31,850 bracket, you would need to set aside 15% for income tax. And so on. So, let's say you make $25,000 total. This would place you in the 15% tax bracket, but you will not pay 15% on the entire 25,000.

    You would pay 10% on the first 7,825: .10 X 7,825= $782.50

    You would then pay 15% for every dollar earned in the 15% ($7,826-31,850) bracket-- or from the 7,826th dollar to the 31,850th dollar.

    25,000- 7,825= $17,175 earned in the second bracket (taxed at a rate of 15%)

    .15 X 17,175= $2,576.25

    You would then add these totals together to get:

    $2,576.25+$782.50= $3,358.50 <--- this is how much you would pay in federal income tax if you were to earn $25,000.

    In addition to this (because you live in the state of California), you will need to pay your state income tax. You will also need to pay the tax imposed by either FICA or the Self-Employment Contributions Act (I'm not sure if a freelancer would be considered self employed)-- payroll tax. I could not find the tax bracket rates for the state of California, though I'm sure you can find them somewhere.

    This isn't a comprehensive look at taxes, but I hope you found it helpful. Unfortunately, many things run and imposed by the government are anything but simple.
     
  3. Cogito
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    Cogito Former Mod, Retired Supporter Contributor

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    I have moved this to Writing Issues -> General Writing. Suggestions and Feedback is for suggestions and questions about the WF.org site.
     
  4. mammamaia
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    mammamaia nit-picker-in-chief Contributor

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    1. that you will have to report all payments for your work as income, when filing a tax return

    2. that you need to keep track of and save the receipts for all work-related expenses...

    ...that will depend on what your total income amounts to, including a 'day job' if you have one... no one can answer this for you but a cpa who specializes in tax work...

    ...that's right... but it's based on if you don't make enough total income, not just the writing-related part...

    ...not necessarily, but it depends on what you are doing and what town/city/county you live in... you must check with the local gov't clerk's office, to get the answer to that... all i can tell you is that when i both freelanced and ran a writing consultant business in westport, CT and in seattle, WA back in the 80's & 90's, i did not need a business license... but i did need a good accountant and had one...

    ...you would not need a license to simply work as a freelance writer, since you are not providing a service or selling a product to the general public...

    ...there are different rules for all kinds of things, as each state makes its own... i strongly suggest you consult a cpa and not rely only on what people here tell you... and that includes me!

    ...feel free to email me if you need any further details...

    love and hugs, maia
    maia3maia@hotmail.com
     
  5. Hazel Eyed Scribe
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    Hazel Eyed Scribe Member

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    Thank you!

    Thank you all for this...sorry it took me so long to reply; I don't have internet at home. :( But thanks again. This info was very helpful.

    Ash
     
  6. NaCl
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    NaCl Contributing Member Contributor

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    Ash,

    You will be paid on a 1099 basis...that is...you are self employed. As such, you automatically must pay federal "self employment" tax of approximately 15.3%. If you incurred any "business expenses" that can be deducted from your 1099 income (like costs for research on an article), then you can lower your self employment tax by taking those business deductions, although you may have to prove those expenses if audited. Personal deductions like charitable contributions or mortgage interest do NOT count against self employment tax.

    After the fed's self employment tax, you must pay income tax both at the federal and state level. If you itemize your tax returns, you can reduce this tax burden somewhat, but ultimately your 1099 income tax will be based on your "marginal tax bracket". For example, if you are a student and only earn a few thousand dollars per year, then your marginal tax bracket might be zero...i.e. you will pay nothing on your 1099 earnings except that self employment tax. On the other hand, if you are married and your joint income is say $100,000, your marginal tax bracket (depending on deductions) could be well over 30% between feds and state.

    The answer to your question is based how much money you earn overall. At a minimum, you should set aside 15.3% for self employment tax. If you are in a significant marginal tax bracket, just add that additional percentage to the SE tax. For example, 15.3% plus 17% marginal tax bracket = 32.3% overall. The best way to determine your marginal tax bracket is by paying a professional...CPAs are best.
     
  7. mammamaia
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    mammamaia nit-picker-in-chief Contributor

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    if you're making enough at free-lancing to go the self-employed route, you'll need a good cpa to do it right and figure your expenses, work space deductions and such, since it's a lot more complicated than an 1040ez , what with schedules 'this 'n that' to translate, figure and append... especially if free-lancing isn't your only source of income...

    i know this from years of experience... there's no way i could have done it all on my own, even with a genius IQ and having pulled straight A's in math... and had i tried, i'm sure i couldn't have found all the ways to keep my tax bite as small as my accountant did... he always saved me much more than his fees...
     

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