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Blogging and Taxes: Getting your Taxes Done on Time

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Being a freelancer is a serious business on its own and so are the taxes that go with gigs like blogging.

Yes, taxes are not fun, they can snuff the life out of you if they’re all left undone. But really, all you need is to devote a day or even a couple of hours which is enough time to get your tax affairs in order. Even if you have an awesome run these last 11 months working here and there, tax season is bound to sneak up on you before you know it. So you better have your receipts and forms ready and please do yourself a favor never do your taxes at the last minute.

W-2
If you’re a blogger hired by an online magazine and you’re paid regularly like a full-time employee, then you need to fill out this form. This form lists your salary, the taxes withheld, tips, commissions, social security tax and any other form of employee compensation. The IRS will require your employer to send you a W-2 form, since the IRS receives a copy of your W-2, they can compare whether the tax return you filed matches that of what your employer submitted. This form will let the IRS know whether you owe any back taxes or if you’re entitled to a tax refund.

1099
This form is primarily for independent contractors. If your blog income rakes in $600 or more in a year you’ll need to file a 1099. It’s good to keep track of every payment made to you throughout the year, and then check the amounts on all the 1099 forms you receive if they are consistent. There should be no discrepancies; the amounts issued on your 1099s should match up.

As a self-employed worker you can also deduct expenses related to your blogging work through the 1099 form, deductions can be made on the cost of things such as office equipment, office space, tools, cameras and soft wares.

If the process seems too overwhelming, then hire a tax expert on freelancer returns. Yes, I’m calling YOLO on this, if you’re not up to it then hire an accountant or a freelance tax attorney and get your taxes straightened out.

So a quick recap if you received the following:

  • If you got a W-2 in the mail, it means your taxes are withheld and you are technically an employee. The company that hired you will pay half of your employment tax which is your Social Security, the rest of it you are responsible to pay for out of your own pocket.
  • If you got a 1099 which means no tax withheld, this automatically states you are a freelancer, an independent contractor. You are on your own here; you pay for your Medicare and social security tax.

But just as critical to know which form to file, do know what tax credits and deductibles you qualify for. As a freelancer, you may be at an advantage here since there’s a lot of room to reduce your taxable income and do write-offs. But more importantly, make sure you never miss a tax deadline. Reaping the ire of the IRS will only cost you more in penalties and legal woes. As a freelancer, the tax-related paper works you need to keep are receipts, pay stubs and W-2s because the IRS has six years at least to audit returns. So if you do finish early, take tremendous pride that you’ve done your taxes right, it’s no easy feat, you should feel doubly good about not taking your taxes for granted and getting some much needed tax relief.

What Documents Do You Use as Proof of Income?

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On Freelance Switch, Thursday Bram posts about an issue freelancers commonly face: how do you prove your income?

This is especially useful if you’re applying for loan financing, for instance, buying a home, a car, or even leasing an apartment. If you work for a company, you can always secure a certificate of employment. Sometimes, if you work for a top corporation in your city, creditors will be quick in their approval. If you lack documents, though, you might have to go through hoops before you can convince them of your financial capability.

Most of the time, you can present your tax documents as proof of income. But for some of us who work freelance in the informal sector (meaning you don’t pay taxes), this could be a problem. In some places, you might be asked for business documents. In my city, for instance, banks and financing companies ask for business registration and a mayor’s permit. And that’s for a “self employed” classification!

Most freelance writers and bloggers bear the responsibility of taking care of their taxes and social security payments. No one else takes care of these for you automatically, unless you can afford to hire your own accountant. We don’t even have group health insurance, so those who buy insurance have to pay a non-discounted rate.

As for me, I usually use bank statements to back up my claims for income. Whether my revenue comes through PayPal or bank transfers, these all go through several bank accounts, which–I’m quite thankful–are all at least two to three years old. I also have some contracts with freelance clients. Sometimes it’s difficult to explain that clients can come from all over the world, and that contracts are transmitted by scanned or faxed documents. But so far I haven’t experienced any big hitches.

Have you experienced a situation wherein you need to prove financial capability, but you’re having difficulties giving documents because you work freelance? What documents have you used? Or what alternatives do you have?