Essential Tax Documents for Every Freelancer and Contractor
Working as a freelancer or independent contractor can be challenging. You have to juggle client needs and provide a great product or service. Freelancers must also carefully review their business records, in order to file an accurate tax return.
Here are the tax documents that every freelancer and contractor needs. First, let’s define an independent contractor.
How to Determine Your Freelancer Status?
The IRS defines a worker as an independent contractor using three different criteria:
- Behavioral control: Does your company have a right to control what the worker does and how they perform the job?
- Financial control: Does your company have a say in the material aspects of a worker’s job? In other words, do you decide which expenses are reimbursed or who provides necessary tools and supplies?
- Contractual Relationship: Is there a written contract? Are benefits such as pension, insurance, and vacation, or sick days a part of that contractual obligation?
When these three criteria are met, the IRS considers the worker an employee of your company, and you are responsible for filling out Form W-2 and paying your share of the FICA taxes.
If these criteria are not met, the worker is an independent contractor who is responsible for paying their own taxes. These individuals receive a 1099-NEC, which is essential for 1099 freelance earnings.
To keep the discussion simple, we’ll use “freelancer” to refer to both freelancer and contractors in the rest of the article.
Form 1099-NEC
Companies use Form 1099-NEC to report income earned by freelancers and independent contractors. For tax year 2024, businesses must send Form 1099-NEC to recipients by January 31st, 2025.
Freelancers should keep copies of their 1099-NEC forms for tax filing purposes. Employees, on the other hand, receive a W-2 form to report their income to the IRS.
If a business pays a freelancer less than $600 in a tax year, it is not required to issue a 1099-NEC. However, freelancers must report all earnings to the IRS, regardless of whether they receive a 1099-NEC from a client. Understanding these requirements is crucial for filing taxes as a freelancer properly.
Filing Taxes Without a 1099 Form
Here are the steps to file a tax return when you don’t receive a 1099 freelance form from all of your customers:
Check for your 1099 Forms
– Gather all of the forms that you received from customers during the year.
Review your bank deposits
– Review your deposits, and compare your freelance tax form documents with the customer deposits. If you received a client payment but not a freelance tax form, the dollar amount must still be posted to your tax return.
Complete Schedule C
– Freelancers post business revenue and expenses to Schedule C of the personal tax return (Form 1040). Revenue less expenses equals net income (or profit), and the freelancer’s net income is added to other source of income on Form 1040.
All of the freelancer’s income must be posted to Part 1, Line 1 of Schedule C (Gross receipts and sales). This includes income reported on 1099 forms, and payments under $600 that did not require a 1099 form.
A freelancer’s business net income is posted to Schedule 1 of Form 1040, and the amount is added to other income (such as a spouse’s income, dividend income, or interest income) on the personal tax return. This process is essential for those learning how to file taxes as a freelancer and ensuring compliance with IRS regulations.
Here are some other forms that are not required for freelancers.
Other Tax Forms
If you’re worked as an employee, you may be familiar with these forms:
1) Understanding Form W-4:
The Employee’s Withholding Allowance Certificate (Form W-4) is a form that the federal government requires employees to fill out when they are newly hired. Information submitted on the form (allowances) lets employers know how much salary to withhold from a paycheck for tax purposes.
Freelancers are not categorized as employees and do not need to complete W-4 forms for clients, as they handle their own freelance taxes 1099 obligations.
2) Going over Paystubs:
A pay stub lists all of the key information related to an employee’s pay. The paystub provides information on wages, tax withholdings, and benefit withholdings. In most cases, freelancers don’t receive pay stubs from customers. Instead, they must keep their own financial records to handle freelance work taxes correctly.
Whether you’re a freelancer or a business owner, you can save time and increase accuracy by using technology.
How FormPros Can Help
FormPros offers expertly customized business and tax forms. Our software provides intuitive forms that ask the right questions, so you can quickly generate documents at a fraction of the cost of hiring a lawyer.
Your business can generate 1099-NEC documents, Form W-2, and W-9 forms using FormPros. The process is quick and painless, giving you more time to focus on your business while ensuring you understand how to file taxes for freelance work.
By following these steps, freelancers can efficiently manage their tax obligations, including filing taxes as a freelancer, handling freelance work taxes, and ensuring they meet all IRS requirements. Knowing how to file taxes for freelance work correctly can help avoid penalties and simplify the tax season.
