Freelance life comes with great freedom and flexibility — as well as an added financial responsibility. While full-time employees only need to file taxes once a year, self-employed workers need to pay quarterly taxes on top of filing annually.
To do both and keep up with your tax obligations throughout the year, you’ll need to familiarize yourself with a few important tax forms. Here’s a quick overview of the forms you’ll need to file taxes as a sole proprietor.
Send a W-9 to Your Clients
As a freelancer, you need to fill out a W-9 form. It’s your responsibility to give this form to your clients, so make sure to fill it out by the deadline — even if the companies with which you work don’t ask you to do so.
Filling out the form is fairly simple if you file your taxes as a sole proprietor. Just make sure that the name you provide matches the one you use on your tax return. For example, don’t include a middle initial if you don’t write it on your return. The next field asks for your business name, but most sole proprietors will leave this field blank because they simply operate with their own names. Once you get to the federal tax classification section, check the box for “Individual/sole proprietor or single-member LLC.”
If you have an Employer Identification Number (EIN), you can use this on your W-9 in the taxpayer identification number (TIN) field. Otherwise, you can simply write in your Social Security number here. Before you send out your W-9 to clients, make a copy for your own records.
Receive 1099 Forms From Your Clients
Once you send your W-9 out to a particular client, you should receive a 1099 form in return. A 1099 provides a summary of the money another entity — either a fellow sole proprietor or another business — paid you in a given tax year.
You’ll want to focus on Box 7 in this form. That’s where “non-employee compensation” is listed (stating the total amount paid to you). Clients who paid you $600 or more should send you a 1099 after December 31, but before your taxes are due. If someone paid you less than $600, you won’t get a form — but you still need to report the income.
Don’t panic if you haven’t received a 1099 from a client. You can still file your taxes without a 1099, but make sure you report that income. This is one of the many reasons why it’s important to keep your own records of payments received, just in case.
Estimate With Schedule SE and Schedule C, and File With Form 1040
Form 1040 is what you’ll use to actually file your taxes, while Form 1040 ES determines your estimated quarterly payments that you send to the IRS throughout the year. In order to fill out all the information required on your 1040, you’ll need to refer to two additional forms.
A Schedule C takes your business expenses and earnings into account to determine a net profit or loss. Once you know your net income from your work as a sole proprietor, you can use Schedule SE to determine how much you owe in self-employment tax. All this information will be used on your Form 1040, too.
Use a Schedule D to Report Your Investments
Finally, if you experienced any capital gains or losses, you need to report them with a Schedule D. For example, you may need to report the sale of a property that hasn’t already been enumerated on another form, or any involuntary conversions — cases in which “you receive compensation for the destruction, theft or confiscation of property.”
As a self-employed individual, your taxes are a little more complicated than that of a 9-to-5 employee. Your specific tax situation could potentially call for other forms than those listed out here, so you should consider talking all this over with a CPA or another financial professional.