Many people today don’t earn enough at their day job to live the lifestyle they want to live.  Others love the freedom that being a freelancer allows them.  Either way, if you’re bringing in more than a few hundred bucks a year with your side gig, you’ll be on the hook to pay income taxes.  Even if you’re being paid in cash, you could be audited and if you’re skimping out on your tax duties, you’re in for a world of hurt when the IRS comes after you.

Don’t risk it.  Instead, let’s look at what it takes to pay income taxes as a freelance writer (or really as a freelancer in any industry, they’re all going to be about the same).

Don’t Panic! Your Taxes Should be Fairly Simple

Before the numbers start to scare you, know that your income taxes as a freelance writer shouldn’t be all that difficult.  In fact, if you keep good records, you can enlist the help of an accountant and it’s actually super easy – you just hand everything over to the accountant and they take it from there.

There are three important points to keep in mind when you’re earning money as a freelancer.

1 – You Owe Income and Self-Employment Tax

If you work for someone else, they pay a portion of your taxes for you.  Income taxes, both federal and state, are your responsibility.  Self-employment taxes (currently at 15.3% – 12.4% to Social Security and 2.9% to Medicare) are usually split between you and your employer.  But if you’re the employer and the employee, as is the case of a freelance writer, then you’re on the hook for all of the taxes.

2 – Pay Quarterly Estimates

Unless you give yourself a W2, you’ll have to pay quarterly estimates for the taxes that you owe.  I highly recommend using a bookkeeper (your accountant should be able to handle this) and going the W2 route for simplicity sake.  If you don’t, and you’re earning substantially with your freelance income, you’ll need to estimate how much your taxes would be and pay them every three months.  Skipping this can lead to penalties and added costs.

3 – Keep Personal and Business Finances Separate

One area of confusion is that all your money is one big pool.  However, that’s a recipe for getting things discombobulated – thatmeansallmixedup.  Open a new bank account and designate that as your business account.  If you’re not registered as an LLC or S-Corp, it will just be another personal account.  But this way you can deposit money into the same account as you pay your business expenses.

There’s a lot more that goes into taxes, but this is a good starting point.

Keeping Track of Income and Expenses

You can pay for fancy software or things like Quickbooks.  However, if you have a simple side business and you’re not making a ton or spending a ton, you can do what’s called a cash accounting system and use a simple Excel spreadsheet.

Here’s how I’ve done it, even as I run my writing business as an S-Corp.

I have two spreadsheets.  One that keeps track of money coming in, and one that keeps track of money going out.

On the income sheet, I have three columns: date, source, and amount.  When money comes in, I simply plug that into my sheet (which is set up to add up the amount column automatically and breaks it down into months and the entire year).  Now I have a log of who paid me and how much they paid me.

On the expense sheet, I have something similar: date, description, and amount.  It clearly lays out when I paid, how much I paid, and what it was for.  I simply save these and send them over to my accountant at the beginning of the year when she’s prepping last year’s returns.

What if you accidentally pay an excuse from your personal account?  No big deal, just write yourself a check for the same amount, and keep a note that says it’s a reimbursement for a business expense.

How Much Do you Owe in Income Taxes as a Freelance Writer?

One of the best things is that you can get your taxable income down quite a bit without extra expenses.

When you’re running a little side business, even if you’re only pulling in a small amount as a freelance writer, you can write off a whole lot of things.

Do you work from home?  That home office is a deduction (there’s actually a way to pay yourself rent that counts as a business expense for the business, but if it’s under a certain amount, it’s not reportable income to you personally – check with your accountant on that one).  You can deduct a percentage of your utilities, your internet service, your cell phone, and more.

Do you eat at home while working?  You can deduct some of what it takes to prepare those meals.  Do you use the bathroom?  Write off toilet paper.  Do you drive to meet clients?  Those miles are deductible.

When it comes down to it, when you maximize your deductions, you can get your taxes considerably low, and the income taxes as a freelance writer might not be as much of a worry as you think.

Bringing in More Money as a Freelancer

Many people find that they can make far more per hour when they’re freelancing than at their day job. They’re tempted to quit and just rake in the big bucks.  Good idea, if you’ve tested it first.  After your taxes and expenses, that higher hourly rate might not be as attractive (and keep in mind that retirement, insurance, and other benefits might make your day job more ideal).

The good news is that you can pull in even more from your side gig, if you leverage yourself properly.

Have you considered writing a book on your expertise?  As a published author you’re suddenly set far above the competition.  When people see you and your competitor side-by-side, they see gravitate toward you since you literally wrote the book on it.

Don’t know how to write book?  Let me help.  I have an Author’s Mastery Academy that will teach you how to write your book, or as a ghostwriter I can learn your voice and do the writing for you.  Simply book a free 30-minute discovery call and we’ll get the process going.