You’ve decided you’ve had it with working for a corporation. You have a way of providing the same service, but better! Welcome to the world of freelancing. Every day, you keep hearing how more and more people are cutting ties with a company and becoming their own sole proprietorship. You may no longer work for a corporation, but that doesn’t change anything regarding paying Uncle Sam at the end of the year.
Taxes for freelancers can get a bit tricky. You may find yourself shocked at the end of the year to see how much you owe in taxes. As a freelancer, your paycheck doesn’t include your tax withholdings for Social Security and Medicare. When you are an employee, you share those costs with your employer. Because you are paid the full amount that you earn as a freelancer, you have to make up for those costs by paying self-employment tax.
Here’s what else you should know about how income taxes work for freelance transcriptionists.
What is the self-employment tax?
As of 2018, the self-employment tax is 15.3% with 12.4% for Social Security and 2.9% for Medicare. To satisfy self-employment tax as a freelance transcriptionist, you can make payments on a quarterly or annual basis, whichever you decide is best for you. The IRS provides freelancers and self-employed persons the 1040-ES worksheet. Once you calculate out how much you expect to make in a year, you’ll divide that into four quarterly payments.
Can I make any write-offs as a freelance transcriptionist?
The good thing about being a freelancer is that you are able to write off business expenses. Those include the following:
Education and certifications
You can deduct any further education or certifications you pay for while working as a freelance transcriptionist from your quarterly taxes. It has to be relevant to advancing your career or industry knowledge. Taking an art class at the community college may be fun, but doesn’t count as a write-off for those who are freelance transcriptionists.
Equipment and supplies
Because you are working for yourself, you have to buy all the supplies and equipment that a freelance transcriptionist needs. TurboTax cautions to keep track of everything and separate out personal and business expenses. “For example, you might run into a gray area if you deduct your cell phone or Internet service while using them only partly for work.” Maintain a spreadsheet and hang on to those large item receipts. You’ll definitely want to write those off!
If you need to travel for any reason to meet clients or to go to conferences, you can deduct those expenses. TurboTax says that there is one caveat. “You’re allowed to deduct the costs of traveling to a job—with the exception being commuting to an office—and business meals with clients are also deductible, at a 50% rate.” Again, you need to have bulletproof evidence that the trip to California was for your freelance medical transcription business, and not because you wanted to go to the beach.
Home office and how income taxes work for freelance transcriptionists
The best part about being a freelance transcriptionist is the perk of working from home. If you have a set space to call an office, you can write everything (desk, chair, computer, printer, office supplies) within that space as well. This includes rent if you live in an apartment and your utilities as well.
The tax side of things is minor in comparison to how awesome it is to run a business doing what you love to do. Becoming a freelance transcriptionist has plenty of perks that make dealing with taxes on a more frequent basis a wash.
This blog post has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before using the above information to prepare your taxes because every tax situation is unique.