So, tax season is upon us. You’re looking at all your receipts from this year and want to disappear under a pile of invoices… and you’re wondering if you can slink under the radar this year. W-2? What’s that?
After all, you’re no millionaire, just a clean-living honest citizen… and you got Paypal’d your last freelance check… and your dog ate your 1099s?
Here’s the tough news. If you make more than $400 freelancing, you need to report it on your taxes. Yes, $400. Yes, it’s a tiny amount. Yes, you still need to report it. Even if you don’t owe any income tax, self-employed tax starts at $400.
Self-employed workers need to be careful about their taxes. The IRS keeps close tabs on freelancers, because they know that they’re an easy target to pick up payments owed.
Freelancers, here are four ways to avoid an audit:
(PS, we’re definitely not lawyers or accountants, so when in doubt, consult a tax professional!)
1. First of all, file your taxes! Even if you’ve got a day job and freelancing is just your side gig, the IRS receives a copy of every W-2 and 1099 you receive, too. So if you don’t report your freelance income, they’ll note the mismatch… and an audit might be in order.
2. Be responsible with your deductions. If your deductions don’t line up with your reported income, it looks suspicious. Taking too many charitable giving deductions, for example, raises a red flag for IRS auditors. The same goes for too many meals and entertainment deductions. Read our full guide on deductions for freelancers here, and check out the ultimate list of tax deductions from our friends at Bench here.
3. If you’re deducting your home office, follow the rules to the letter. Be honest with your expenses and measurements. And no, your bedroom—even if you do answer work emails in your pajamas—does not count as a home office. CPA Jonathan Medows gives you tips on home-office calculations here.
4. It may be tempting to report personal purchases as business expenses on a Schedule C to reduce your amount of taxable income, but don’t! Too many business expenses will draw the attention of the IRS.
Of course, there’s no reason to pay more tax than what you owe. So be honest and accurate with your deductions, and there won’t be a problem!
And remember: no matter how small the amount, it’s good to pay your taxes. Not only is it the law, but that money goes to all sorts of helpful places, from Medicare and Social Security to a bunch of other major health programs.
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Larissa Pham is an artist and writer based in Brooklyn, New York. She is definitely filing her taxes this year.