The moment we start earning money we plan our tax returns. Your favorite designer watch can wait but your income tax returns cannot. While in most of the cases the employer often takes care of the tax returns, what should you do if you are just a freelancer?
A lot of people in the last decade or so have made a lot of money by doing freelance writing, logo designing or programming. All this just started as a hobby for most of them and ended up giving them big bucks and in some cases even millions. But is this money considered as a side income or regular one?
As per IRS, a self employed person is one who wholly and solely owns the business and makes all the decisions about how to run the show. Independent contractors selling goods and services are included in this list because they are the ones who decide the way in which it will be done.
You don’t need to register yourself with the government or open a bank account in the name of any firm if you are a self employed person. A lot of people are involved in doing freelance works like copywriting, photography, translation etc and are considered as an equivalent to an independent contractor.
Thus, as a freelancer you can operate out of your living room. But, if you decide to start a firm and employ some other people, you must get your company registered with the state government. A company basically represents a brand. It is no longer associated with an individual and the services or the product that you provide becomes a commodity which others want to buy because of its quality.
A lot of people in a bid to start their company and build a brand name rent an uptown commercial space and spend thousands of dollars in buying expensive furniture which can be easily done without. We all must understand that the brand name is built by a lot of other factors and not only where or how your office looks. These two things perhaps come in the last.
Also, just because you are working for someone in a 9-5 job does not mean that you cannot do freelance work or that anything you do before and after your work hours will not be considered as freelance work. Anything and everything that you do apart from your job hours is freelance work and when you file your tax returns you can claim every benefit offered to freelancers on your freelance earnings.
You can always be a freelancer or an independent contractor even if you are involved in a 9-5 job. Whatever income you make apart from your work hours will be considered as income generated from independent contracts and will be liable to being taxed in the similar manner and not as your salary that you receive from your 9-5 employer.
More information can be found at www.irs.gov/business.