It is also important that you protect your status as an independent contractor in order to avail yourself of the tax advantages of working for yourself. Some of the factors that show you are an independent contractor include the amount of training provided by the client, amount of instructions, your ability to work independently, setting your own hours, where you do the bulk of your work, and whether or not you are working exclusively for a single client.
Schedule C (U.S.)
If you paid taxes before as a sole proprietorship you are probably familiar with Schedule C. This is the form where you list your business income and expenses and calculate your net profit or loss. Depending on your income, you may be able to use a simplified form called the Schedule C-EZ. (In Canada, it's a T2124 or T2032.)
Self-Employment Tax
When employed, your employer takes care of paying social security and Medicare taxes, deducting it from your paycheck before you ever see it. That doesn't happen when you are self-employed. Instead, you must figure out and pay your own taxes — and it isn't the same amount you would pay if not self-employed. In fact, it's about double that amount. Did you have net earnings from your Desktop Publishing business of $400 or more then you may owe self-employment tax. The IRS site has answers questions about Self-Employment Tax including who must pay, how to calculate it, and how to report it.
State Income Taxes
In addition to paying Uncle Sam, some US States require residents and business owners to pay state taxes on income. Refer to your State's Web site for information on filing a state income tax return.
Records/Income | Expenses & Deductions | Income Tax | Quarterly Taxes | Sales Tax
Freelance Design > Starting a Business > Taxes
*This feature deals primarily with procedures and resources for US businesses. For other countries see the table on page one.
IMPORTANT DISCLAIMER: Information in this feature article or contained in the links is provided only as general guidance. Neither About nor this Guide can vouch for the accuracy of the advice offered. For specific advice and requirements for your business, please seek the advice of the IRS (or the taxing authority in your country) and/or a qualified attorney or accountant.
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