freelancing income tax (USA)

[oolong]

okay, so i started freelancing in 2007, and even though i haven't received a 1040 or anything I figure I'm either going to have to start paying them this year or next. and i am sooooo confused. i've found some resources but they're mostly vague or not geared towards contract workers, so hopefully someone else who's been in this situation before can help me out.

- since i actually ran a profit this year (so i won't get a refund) and the government hasn't sent me any forms to fill out, can I just not file and get away with it, or does the government expect me to take initiative in registering my business? will the 'but i didn't know i had to do it and you didn't mail me any forms' defense work if i get audited? it seems stupid to register and give them my name and personal information when i'm just going to owe them money.

- as far as i know, everything i've done so far this year has either been under-the-table contracts, or done as an independent agent work-for-hire at a company as an individual rather than legally contracting my business. if this is the case, will the IRS get tipped off if those employers list the work they got from me as a business expense? i'm assuming the ones who paid me under-the-table aren't going to, what can happen to me if i'm caught operating a business under-the-table?

- am i allowed to deduct any business expenses that were made prior to getting a business license? is the business license itself deductible?

bllaahhhhh

[tatiana]

You don't want the IRS hunting you down for owing back taxes. I'm still paying taxes (and penalties plus interest, dammit) that I owed for freelancing in 2003. It was a mistake I made once and never again.

In my experience, if a company has hired you for work-for-hire (and you had a contract) they'll have you listed in their books for tax auditing in some way or other and should/will be sending you a tax form. If they don't, you should claim the income on your submitted tax form.

If it's under the table, I have no experience with that and cannot give you any advice.

You might want to check out this Freelancer's FAQ (it's been posted on CA before) for some additional general info:
http://www.aw-wrdsmth.com/FAQ/taxes_another_cost.html

t

[masque]

Well, for one thing it's no longer under the table since you just admitted in a public forum that you received income in 2007. Not matter what the source, under the table, over the counter, or through the nose, contract or not, business license or not, if you earned income over the limit (and that's a real small amount), you owe taxes on it. Full stop.

Now, whether or not you actually report that income is entirely up to you, but as tatiana relates, if'n you don't, and the IRS auditors cast a suspicious eye your way, get ready for grief. Could even be major grief. And the "I'm really dumb and didn't know the tax laws that apply to every other US citizen would apply to me" argument won't cut it. Could even be seen as a lie that compounds the crime.

Even if you do file a return and pay your dues, you may get a call from the Feds. First-time freelancers often stumble on this, but you have to pay your taxes as you go if you don't have regular Federal withholding, as on a steady paycheck. That's usually done with quarterly payments based on an estimate of what you will earn in any tax year (search "Estimated taxes" on the IRS website). Failure to have at least 90% of your tax due paid at business year's end violates the IRS code (at least it did the last time I had to go through the paces). So if you made a boat load in '07 but paid no taxes on it during the year, unless it was made all in the last quarter, you may get some small grief (usually a penalty, but you can appeal that if you feel it's warranted). I can't offer any counsel other than anecdotal, but if you plan on regular freelancing, either hire a tax attorney/accountant, or learn the relevant IRS rules yourself.

I'm sure there's probably more than a few websites that have good info and tips for neo-lancers. Do some research, get smart, and get right with Sammy.

[Elwell]

See an accountant.

[oolong]

Well, for one thing it's no longer under the table since you just admitted in a public forum that you received income in 2007. Not matter what the source, under the table, over the counter, or through the nose, contract or not, business license or not, if you earned income over the limit (and that's a real small amount), you owe taxes on it. Full stop.

Now, whether or not you actually report that income is entirely up to you, but as tatiana relates, if'n you don't, and the IRS auditors cast a suspicious eye your way, get ready for grief. Could even be major grief. And the "I'm really dumb and didn't know the tax laws that apply to every other US citizen would apply to me" argument won't cut it. Could even be seen as a lie that compounds the crime.

Even if you do file a return and pay your dues, you may get a call from the Feds. First-time freelancers often stumble on this, but you have to pay your taxes as you go if you don't have regular Federal withholding, as on a steady paycheck. That's usually done with quarterly payments based on an estimate of what you will earn in any tax year (search "Estimated taxes" on the IRS website). Failure to have at least 90% of your tax due paid at business year's end violates the IRS code (at least it did the last time I had to go through the paces). So if you made a boat load in '07 but paid no taxes on it during the year, unless it was made all in the last quarter, you may get some small grief (usually a penalty, but you can appeal that if you feel it's warranted). I can't offer any counsel other than anecdotal, but if you plan on regular freelancing, either hire a tax attorney/accountant, or learn the relevant IRS rules yourself.

I'm sure there's probably more than a few websites that have good info and tips for neo-lancers. Do some research, get smart, and get right with Sammy.

luckily, it was all in the final quarter. i'm also not making a full-time living yet, so my gross income was only $1200 for those 3 of months, and minus business expenses only like $800. i know the limit's low, but isn't it like $5000 or something? i guess i'll look it up. thanks for your help all, especially that link Tatiana it looks really useful

[Stoat]

Definitely. My first year as a freelancer, I made a pathetically small amount of money and assumed I'd be okay. Nope. The IRS expects you to be making estimated payments throughout the year if you bring in anything at all, so when tax time rolled around, I owed them money and PENALTIES for not having done so.

I think of the following year as the Year of Ramen.

[Ilaekae]

You stated that you had to get a license (I'm assuming something local). Allow me to be the first to say this...

S U R P R I S E !

The feds already know about you. Go to your local tax office or state building (or library/post office/whatever) and get yourself a set of forms AND directions for a 1040, a Schedule C (self-employment), and anything else the bastards will let you take for free. Read it. If you don't understand something, ask me to explain it to you in emails or by phone. I'll do it, and won't mind a bit.

Fuck up by not reporting something this early in your shiny-new verrrrrryyyy-long career and you will be on their radar forever. You...will...be...a...terrorist/dope dealer/pedo/wife beater/psychotic serial killer in all federal records until you die. That's DIE! As in some time between 2074 and 2089.

Okayokayokay...I'm exaggerating a bit, but not by much...