Tax Considerations for Freelance Writers

Beyond learning to deal with deadlines and the need to continually come up with fresh fodder for your freelance writing jobs, freelance writing is literally a taxing pursuit in another important way. Whether your freelance career involves writing for publications or on-line content providers, freelance writers by definition are independent contractors, solely responsible for reporting and paying the taxes on compensation derived from their writing. With an accounting background, I tend to be perhaps more focused on the tax consequences of income received from part-time employment efforts than many and early on I investigated the taxation aspect of my part-time career as a freelance writer. Hopefully my discoveries will benefit others who pursue writing as a freelancer.

Freelance Writing is a Small Business

Based on IRS Publication 17, income derived from freelance writing does not meet the definition of "other income" and cannot simply be entered on that line of one of the income tax filing forms. Since freelance compensation is income derived from the sale of a product or service, freelance writers are considered by the IRS to be self-employed as a sole proprietor or independent contractor according to IRS Publication 334. Consequently freelance writing income must be reported on IRS Schedule C or C-EZ. One ramification of this is that if in the past you have been accustomed to filing IRS Form 1040-EZ or Form 1040-A, you will have to tackle IRS Form 1040 which must be used according to IRS regulations when a Schedule C is required. As tempting as it might be to "forget" to report freelance earnings to the IRS and pay the associated taxes, I don't recommend it. Doing so represents tax evasion, something the IRS frowns upon and with the current state of sophistication chances are your omission would come to the attention of the IRS, especially if your earnings are more than $500 during any tax year. All purchasers of freelance writing solicit your name, address and social security number because at the end of the year they will produce a Form 1099-MISC that will show your freelance earnings, a copy of which will be furnished to the IRS.

Paying the Taxes on Freelance Writing Compensation

Depending on how much you earn as a freelancer and whether it represents a side interest or your sole source of income, there are a number of ways you can pay the taxes associated with the compensation you receive. For nominal amounts, you can simply put aside a little of your income in a dedicated account, wait until April 15, complete the Schedule C or C-EZ and pay the taxes calculated. But if your earnings begin to approach significant amounts as a percentage of your total income, you may have to pay taxes on those earnings throughout the year. Again from IRS Publication 17, tax laws require that all taxpayers who expect to owe at least $1,000 in tax after subtracting all withholding and credits and who expect withholding and credits to be less than either 90% of the tax owed or less than 100% of the tax paid with the filing of their previous year return, must use the estimated tax method to pay tax on income not subject to withholding. For estimated tax purposes, the tax year is divided into four payment periods and payments are due quarterly on the fifteenth of the month following the end of each quarter. If you have a regular job, you may avoid filing and paying taxes quarterly by asking your employer to withhold more tax from your primary income by completing and submitting a new W-4 at higher withholding rates. If you choose not to use that method or do not have a job where your earnings are subject to withholding, consult IRS Publication 505, "Tax Withholding and Estimated Tax" for information on how to figure and pay estimated taxes. If the IRS deems that you were subject to the payment of estimated tax and you failed to do so, you will likely incur penalties and interest on any underpayments.

More Taxing News for the Freelance Writer

In addition to income tax, per IRS Publication 334, if the net earnings from freelance writing amount to $400 or more you must also pay Self-employment (SE) tax. The Self-employment tax is for payment of social security tax and Medicare tax. IRS Schedule SE is used to figure net earnings from self-employment and for computation of the SE 15.3% tax (12.4% social security tax plus 2.9% Medicare tax). Schedule SE is another attachment to Form 1040 and this tax must be paid when you file your taxes after the end of the tax year.

Summary

As you can see, freelance writing can be a taxing pursuit in more ways than one, especially when it comes to reporting and paying the taxes on your earnings as a freelancer. Wisdom dictates that you keep abreast of how much you earn each month so that you either comply with the estimated tax method if you become subject to it or at least set aside the funds to pay the required taxes after the end of the tax year. Being caught short without the money to pay the IRS or even worse, finding yourself the subject of additional penalties and interest will add even more stress to that of meeting those deadlines and coming up with new topics to write about.

Sources:

"Your Federal Income Tax: Publication 17 (2008)". Internal Revenue Service. July 4, 2009.

"Tax Guide for Small Business: Publication 334 (2008)". Internal Revenue Service. July 4, 2009.

"Tax Withholding and Estimated Tax: Publication 505 (2008)". Internal Revenue Service. July 4, 2009.