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I have done some research on this topic already. There are still some things about freelancer taxes I have questions about.

  1. According to what I've read so far, freelancers have to pay taxes on any amount made over $400. Is this true?

  2. Do I make records for my taxes in a yearly time frame or monthly? Sorry if this is a newbie question but I'm still new to this since it will be the first time I file taxes independently of others. What I mean is, do I track my profits throughout the year and pay taxes if over the specified amount or is it monthly?

  3. For freelance income do I pay personal taxes or small-business taxes?

  4. Lastly, how can I file online?

  • You have to pay income tax on all your (net) self-employment income, not just the part over $400. If you have only self-employment income (no wages) and the net self-employment income is below $400, then you don't have to pay Social Security and Medicare taxes on the income. – Dilip Sarwate Oct 24 '18 at 19:48
  • So just report all my earnings? How do I exclude SS and Medicare from being deducted if I earn less than $400? Also, does that $400 limit matter solely for the entire year or am I going to have to worry about that every quarter? – Daniel Oct 24 '18 at 20:20
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According to what I've read so far, freelancers have to pay taxes on any amount made over $400. Is this true?

If you earn more than $400 in total from self-employment activities for the year then you will pay self-employment tax. It is cumulative. Self-employment tax covers Social Security and Medicare. So if you did a one-off job for $350 you wouldn't be burdened with self-employment tax, but it would still count as taxable income.

Do I make records for my taxes in a yearly time frame or monthly? Sorry if this is a newbie question but I'm still new to this since it will be the first time I file taxes independently of others. What I mean is, do I track my profits throughout the year and pay taxes if over the specified amount or is it monthly?

You should keep dated records of all income and expenses related to your self-employment. You'll make quarterly estimated payments to the IRS. Specifically you'll use Form 1040-ES and you'll find a detailed set of instructions and worksheet to come up with how much you should pay. There are also a lot of resources that may be helpful on the IRS site's Self-Employed Individuals Tax Center

For freelance income do I pay personal taxes or small-business taxes?

Most small businesses are disregarded entities, this means that in the eyes of the IRS, the business income is your income. Even if you create an LLC where you're the only member, by default the LLC is disregarded. We don't have small-business tax in the US, just corporate and personal, most likely there's no reason for you to set up a corporation (or elect to be treated as one).

Lastly, how can I file online?

All the big online tax prep companies I'm aware of support Schedule C, which is where you'll most likely report self-employment income. You still file a 1040, just one more schedule on there to show your net income from self-employment, and will also have to file Schedule SE (self-employment tax). There are other options if you want to be treated as a corporation or create a partnership. Most of the online tax software does a fine job of walking you through this and adding the necessary schedules.

There are a lot of resources and opinions about how you should structure your business, if not feeling confident in your own research, it may be worth some peace of mind to pay a professional for some advice or to help you get set up initially, but self-employment tax returns are definitely something many people do without a CPA.

  • I was thinking of doing multiple gigs under one business name so I can just pay taxes in one go. Paying all my freelance taxes under one name (business name?) For example, and this is hypothetical, Pyrite Productions will be the name under which I will conduct business in different areas of my field. If I have a business name like that shouldn't I still be considered as an LLC for completeness purposes? – Daniel Oct 24 '18 at 20:03
  • @Daniel LLC's are typically cheap and easy to establish, but many self-employed people don't bother. If it's just you, there's no tax reason to fire up an LLC. An LLC can make your business appear more established to potential clients and limited liability is beneficial in some contexts. Plenty of good resources for helping you decide if you need an LLC. Whether or not you go with an LLC, you'll still engage multiple clients and combine income/expenses from all of them on your Schedule C. – Hart CO Oct 24 '18 at 20:10
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    All the big tax software will certainly support self-emp (C+SE) filers, but they may require a higher-cost version (called xxx Premium or xxx Deluxe or whatever); at least that was my experience several years ago. They might well vary, be sure to shop all. If you go to an actual office e.g. H&RBlock I've never used them and don't know how they charge. – dave_thompson_085 Oct 24 '18 at 20:50
  • @dave_thompson_085 I haven't compared in a while, but going to the offices was considerably more expensive last I checked. Good call about versioning, definitely shop around because they don't all charge so much extra for self-employment. – Hart CO Oct 24 '18 at 21:06
  • @Daniel, an LLC gives you some financial protection, but has overhead costs, so the decision whether you should form a company can be treated like getting insurance: look at the cost and the coverage extended, and then decide if it's worth it. For a sole proprietor business, it's almost never, normal third party liability insurance is the better option (and you should have that). An LLC is useful if damages are likely to exceed your coverage, at which point you need a lot more paperwork anyway (think nuclear or medicine technology), or if you have employees, to protect against their stupidity. – Simon Richter Oct 25 '18 at 7:22
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I'm assuming you're in the US. If not, most of what I say here is not applicable. Sorry.

There are a number of variables here. I've done some freelancing, though it was always as a sideline to a "regular" job. Is freelancing your only income or is it a sideline? Have you created a corporation or a limited liability company, or are you doing this as a sole proprietor? As you're asking "newbie" questions, I'll assume you haven't done all the paperwork to create a corporation or LLC.

Regardless of any of the above, you still file taxes once a year, just like you're used to.

If you're a sole proprietor, you'll report the freelance income on a Schedule C. (There are different forms for corporations and LLCs.) This can be an addition to income from a regular job, or it can be your only income.

There's a box on the 1040 to report schedule C income and add it in to your total income. Then you calculate taxes normally, based on your total income from all sources: a regular job, freelancing, capital gains, whatever.

If the freelancing income is small compared to your regular job, you can just add the schedule C to your tax return, and this will reduce your refund or add to how much you owe.

If the freelance income is your only income or is large compared to your regular job, then you have to make quarterly estimated payments. Basically, you have to make a guess at how much money you will make, calculate the tax on this, and then send the government 1/4 of this amount every 3 months. It's the same idea as withholding from a paycheck from a regular job, except that you're withholding from yourself. Then at the end of the year you file your return, and if your estimate was wrong you'll owe more money or get a refund. So it basically doesn't matter if your estimate is off a little. It will all get straightened out when you file your return. However, you can't estimate way low. If your estimate is too low, you'll have to pay penalties. There's a penalty if your estimated payments are, (a) Less than 90% of what you owe; and (b) At least $1000 less than what you owe; and (c) Less than what you owed last year. (https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes)

I am not aware of any rule about only paying taxes on earnings over $400. There is no place on any form I've ever seen that says "subtract first $400". If your freelance earnings are small, like somebody paid you $50 for a one-shot job, it's probably technically taxable income but nobody cares. The IRS isn't going to come after you because you failed to declare $50 of miscellaneous income. Clients are in some cases required to send you a 1099 if they pay you over $600, maybe that's what you heard about. But legally, all your freelance income is taxable. Well, I should say profits from freelance work are taxable. You can deduct expenses from income. But see the forms and instructions: there are lots of rules about what you can deduct and when and how. Just because you think of something as a business expense doesn't mean the IRS recognizes it as a business expense.

Yes, you can file electronically. If you've previously filed taxes electronically, it's done exactly the same way. The only difference is that you now have a schedule C added to your taxes, and possibly additional related forms. If the method you've used to file taxes in the past doesn't handle schedule C income, then you'll have to get different software. There are plenty of software packages out there that support a schedule C. I've been using H&R Block for years, I used TurboTax before that, I'm sure there are others. Maybe the free web sites don't support it.

  • Hart CO said the limit before paying taxes is cumulative. So going along with what you said here, I guess if i make $50 it doesn't matter but if I do more work and accumulate more than $400 (in the quarter? in the year? someone help me here) then I would have to file. – Daniel Oct 24 '18 at 20:13
  • Single-member LLC is the same for taxes as sole prop; partnership or multi-member LLC, or corporation, is different. @Daniel+ Hart said under $400 (for the calendar year, or fiscal year if you go to the hassle of setting that up, but either way a year) you don't pay self-employment tax (= Social Security + Medicare); see schedule SE line 4. That is separate and different from and does not affect income tax. Although if total income (freelance plus any other) is less than deduction(s), you pay no income tax. – dave_thompson_085 Oct 24 '18 at 20:51
  • @Daniel, the assumption is that if you earn less than $400 in a year, then freelancing is not your main job, so social security and Medicare are covered by whatever is your main job. Above that, it is expected that your freelancing reduces the number of hours you work as an employee, which would reduce your SS contribution there, so you are expected to make up for that on the freelancing side. The cutoff at $400 exists because it isn't cost-effective for the IRS to track smaller amounts, this should not be a factor in your tax calculations. – Simon Richter Oct 25 '18 at 7:39
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    Ah. Schedule SE, which is for social security taxes for self-employed people, irs.gov/pub/irs-pdf/f1040sse.pdf, says if your self-employment income for the year (not the quarter, the year) is less than $400, you don't owe self-employment tax. If it's $401, you pay taxes on $401, you don't get to exclude the first $400. But you owe INCOME taxes on self-employment income regardless of amount. As I say, if it's a small amount, the IRS will probably never know or care, but technically if you make $1 you owe taxes on it. – Jay Oct 25 '18 at 17:20

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