I was recently asked by a freelance writer just starting his business how to handle any income he makes with regard to taxes. Since this is a topic that might interest other freelance copywriters as well, I thought I’d share his questions and my responses here. Please bear in mind, I’m not an accountant, so you might want to consult with a professional bookkeeper or CPA about your personal finances.
– Susan Greene
I am a recent college graduate in Illinois. I currently work as a sales person for a small technology company but am considering pursuing freelance copywriting on the side as a way to get experience and also generate an additional revenue stream. I would like to ask you a few quick questions.
If I do manage to make some money as a freelance copywriter, is it legal from a tax standpoint?
Susan: I’m chuckling here, David. Yes, of course it’s legal. You can make money any way you want, as long as your method doesn’t break any laws. Welcome to America!
From a tax standpoint, you do have to pay taxes. Once again, welcome to America!
If your freelance business starts bringing in significant money, say $1,000+, you should look into paying quarterly taxes. Since you don’t have an employer withholding money for taxes and Social Security, you need to do it yourself. You can’t wait until the end of the year to pay up. The IRS doesn’t like waiting for its money. So you need to make quarterly payments.
Google “quarterly taxes” and you’ll find plenty of information.
When you do your taxes at the end of the year, you need to know how much you earned and how much you spent on your freelance business. So keep good records of your accounts receivable, accounts payable and expenses.
I personally use Excel spreadsheets for tracking money in and money out but other freelance writers swear by accounting software like Freshbooks, which can also be used for client invoicing.
One of the reasons you want to keep good records of money in and money out is that you can deduct relevant expenses from your earnings. For example, if you buy a computer to use for your writing business, that’s deductible. So is a percentage of your living expenses if you work out of your home. An accountant or some online research will provide you with more specific answers.
The point is, don’t rely on your memory. Document everything. If you overstate your income, you’ve paid too much in tax. If you understate your income, the IRS could come asking for additional taxes plus penalties and interest. Ouch!
Follow-up Question from David:
Should I consider myself a freelance consultant or get registered as a business so I can document your income?
Susan: The answer depends on how serious you plan to be about freelancing. Is it a little side hustle that at best will bring in just enough money to justify your Starbucks habit? Or do you hope to have this blossom into a thriving, full-time business to which you’re wholly dedicated?
If I were you, I’d get a few writing jobs under my belt and then worry about whether to register as a business. Registering costs a few bucks and involves some decision making regarding how you want your writing business to be set up (i.e. sole proprietorship, limited liability company, incorporated, etc.). You’re not there yet.
For now, focus on getting customers but do keep good records of any income and expenses. Worrying about what to do with the money once it starts flowing in will be a good problem to have and one that’s easily resolved with the help of an attorney or accountant.
Susan Greene is a freelance copywriter based in Orlando, Florida. You can learn more about her copywriting services here.