There are several federal IRS tax forms that you’ll probably be handling as a self-employed person, a freelancer, an independent contractor, or whatever you want to call yourself.
1. W-9, “Request for Taxpayer Identification Number”
When you perform work for someone as an independent contractor, the client is required to give you a W-9 to fill out. The W-9 is a form you fill with your basic contact information and your social security number or federal EIN. Your client then keeps this form on file and can use the information in it to fill out the 1099-misc. I always email a W-9 PDF to my new clients, cause I’m a nice guy.
If you don’t feel comfortable entering in your social security number on the W-9, then register for a federal EIN online.
2. 1099-MISC, “Miscellaneous Income”
If you are paid more than $600 for your work as an independent contractor, your client is obligated to file a 1099-misc form with their return. The 1099-misc is just a way for the government to keep a record on your earnings, since you don’t have anyone reporting them. As an employee, you get a W-2 and as a freelancer, you get a 1099-misc.
3. 1040 Schedule C, “Profit or Loss from Business”
If you are a sole-proprietor or a one-man limited liability corporation, you will need this form. How taxes will work for you is that you will calculate your profit or loss from your business and then take that number and include in your 1040, in the income section.
4. Form 4562, “Depreciation and Amortization”
If I buy a $900 computer in 2012, do I have a $900 expense for 2012? No, I don’t. Certain expensive equipment, like computers, a table saw, or a business vehicle are depreciated. Depreciation means that the expense is spread over the lifetime of the asset instead of just once in the year it was bought. The rate of depreciation and the lifetime of the assets are determined by the IRS.
The $900 computer, for example, has a 5-year lifetime. If I put it into service in the middle of the year (half-year convention), it would be expensed as follows:
|Actual Depreciation Expense||$180.00||$288.00||$172.80||$100.80||$100.80||$51.84|
Although the lifetime is 5 years, because the computer was put into service in the middle of the year, that means that it will be halfway through year 6 before it is actually in service for 5 years. Confusing, right? Well, depreciation is a very complicated and difficult subject in general. If you don’t understand it at all, then you might need to hire the services of a CPA.
If there are other useful forms you can think of, please let me know. One last note: I am not a tax professional. I am just sharing my knowledge with others in my situation. If you really want to cover your bases, but don’t have the time or energy to deal with it, I suggest starting a long-term working relationship with a CPA. Long-term relationships are good because the CPA will be familiar with your business and taxes and this will save time for subsequent years and presumably be cheaper.