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Freelancers: When did you start paying taxes?

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  • Freelancers: When did you start paying taxes?

    I have been dabbling in freelance for awhile, doing little projects like a flyer for a friend of a friend or a business card for so-and-so's brother. I never collected or paid taxes on these things because they were just small little projects I did as a favor and for pocket change. Now I'm wanting to scale up into more of a business.

    My question is, as a freelancer, when did you (or should you) start paying taxes? I thought the answer would be as simple as a Google search, but some say after you make XX amount, others say different things. If the client doesn't send you a 1099 (or anything else) because perhaps they're not even an established business, do you pay taxes on that? I know this may sound dodgy but I truly don't intend to skirt the system. Just don't know at what point it stops being a hobby that brings in a few extra bucks, and starts to make sense to deal with taxes.

  • #2
    If you make money, you have to declare it and pay taxes on it. The $XXX limit thing is misleading... there's no amount of money you can make the IRS doesn't want a piece of, basically. Play it safe, keep track, pay the tax.

    Most of my clients don't send a 1099, that has nothing to do with your obligation.
    Last edited by EC; 05-01-2017, 11:58 AM.
    You can fool some of the people all the time, and those are the ones you want to concentrate on. --GWB

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    • #3
      NOTE: Not a lawyer/not a tax accountant

      You are required to declare ALL income earned on your tax return, whether or not you receive a 1099 form the employer/hirer.
      The employer/hirer is not required to send you a 1099 form unless you have earned $XXX in a tax year.

      HOWEVER, you are still required to declare ALL monies earned on your tax return. Whether you have to pay tax on that earned income, would depend on your individual tax return - tax payments, deductions, investments, donations, etc.

      Whether you should be charging your clients sales tax - is usually dependent on your locale and if you are providing them a tangible product, amongst other criteria specific to your state .

      My recommendation is to find yourself a GOOD tax accountant and get the skinny on pertinent requirements before you start a business.
      Last edited by PanToshi; 05-01-2017, 11:58 AM.
      Sketching not only helps you work out good ideas, it helps you get past the bad ones.

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      • #4
        Originally posted by PanToshi View Post
        The employer/hirer is not required to send you a 1099 form unless you have earned $XXX in a tax year.
        Some of my clients who are required to send me a 1099 still don't! I still include that income, and just think tsk tsk.

        Note: I am also not a lawyer or certified public accountant.
        You can fool some of the people all the time, and those are the ones you want to concentrate on. --GWB

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        • PanToshi
          PanToshi commented
          Editing a comment
          Yea, I have several of those too. Like you, I just make sure all my income is accounted for, and I figure they will eventually get the "letter" from the tax-man.

      • #5
        You do know the IRS includes Hobby income as Income, right? They have a whole section for it. Heaven forbid your Hobby makes money, something like buying and trading comic books. If you sell them for a profit, guess what? That's a profit. ie Income.

        I believe the dollar figure is still $600 in order for someone to send you a 1099. But you need a good accountant to set up your business. Business to busines doesn't necessarily involve a 1099 at all. But it depends on what kind of business you are.

        There are ways to set up your business so that you buy things you intend to sell to your clients at wholesale rate. You don't pay your print vendor sales tax, but you have to charge your client the sales tax on the other end.

        Being a freelancer is being owner of a business, with all legal responsibilities attached.

        Check into being something other than a Sole Proprietor too. Disengage your personal assets from your business in every way possible.

        <not a tax consultant.

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        • #6
          Originally posted by makestuff View Post
          Just don't know at what point it stops being a hobby that brings in a few extra bucks, and starts to make sense to deal with taxes.
          It's sort of beating a dead horse, but I'll second what the others have said.

          In the U.S., if you make money, the Internal Revenue Service wants to know about it. That doesn't necessarily mean you'll always be liable for taxes, but it's their rules that decide what's owed and what isn't. For that matter, you'll likely need to report it on state income taxes too. Depending on your state, you might even be liable for collecting and paying sales taxes.

          U.S. tax laws aren't really set up to encourage small-time sources of income, like hobbies. Make a few dollars here and there and suddenly your tax preparation blossoms out into dozens or hundreds of pages of forms and schedules. Just a case in point: this last year I had an unusual situation where I received a single, small $60 royalty payment from a certain overseas country. The IRS and state wanted a third of it, but my accountant charged me over a hundred extra dollars just for the hassle of dealing with the stack of paperwork. In other words, I ended up $60 in the hole.

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          • #7
            Thanks everyone. So just playing devil's advocate here, are you all telling me that as soon as you did your first project for a fee you started reporting it as income? Think back to your first few jobs, however big or small they may have been, and suppose you were a high schooler just creating some graphics for gas money. Did you report that?

            I hope I'm making sense with what I'm asking here. There is a time in everyone's career where they go from "learning" and maybe agreeing to do a small project for someone, to taking on enough jobs that they feel they are in danger of being sought out if they don't report income. I'm trying to figure out when that is for most people.

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            • KitchWitch
              KitchWitch commented
              Editing a comment
              We cannot advise you to do something that is illegal, so no one is going to say there's a specific time period in the beginning of your career when it's okay to not report your income. It's similar to asking if we think it's okay to pirate software, as long as it's not Adobe or a big name company. You need to make your own choice here.

          • #8
            Originally posted by makestuff View Post
            So just playing devil's advocate here, are you all telling me that as soon as you did your first project for a fee you started reporting it as income?
            Yes. I don't mess with the tax-man. Freelance is a business and is subject to the tax laws of your jurisdiction.

            Originally posted by makestuff View Post
            I know this may sound dodgy but I truly don't intend to skirt the system.
            U-huh. So, what are you saying? That you want a group of random internet strangers to validate your misguided rationale?

            Sketching not only helps you work out good ideas, it helps you get past the bad ones.

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            • #9
              When I was working full time, I had excess dollars withheld from my day job paycheck to cover income taxes from my graphic design sideline business. Now that I'm a full-time freelancer, I pay the IRS and the State of Colorado an estimated amount each quarter. Yes, you must declare all sales and expenses, and pay income tax on the profit, if any.

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