Over a third of Americans work as freelancers, according to Freelancers Union, a nonprofit organization. That equals 53 million people who help companies like yours avoid hiring full time employees for certain tasks, such as marketing or graphic design.
Have you ever hired a freelancer in your business? Chances are you have. Small businesses see tremendous benefit from bringing independent contractors on board for short-term projects or work that does not require an internal, full-time employee.
If you worked with a freelancer during 2014, here are a few tips to help you prepare for the impending tax season.
Definition of a Freelancer
Freelancers and/or independent contractors can have their own employees. They might also hire other subcontractors to perform work for your business. Regardless, they are considered an independent contractor by the IRS and must be treated as such when filing your taxes.
W-9s and 1099s
By now, your accountant should have advised you to send out 1099 forms to all the freelancers you worked with in the past year who earned over $600.
A 1099-MISC is used to show how much you paid to your freelancers. To file this, you will need a Form W-9 from the freelancer complete with his or her Taxpayer Identification Number and Certification. This is typically their Social Security Number.
You can use the W-9 for years to come, so keep this on file for next year’s tax returns if you plan to work with the freelancer again in the future.
Meals and Gifts
If you worked with a local freelancer, chances are you met over lunch a time or two. These meetings are considered work meetings and they are tax deductible. If you saved your receipts, make sure to write off that expense on your upcoming taxes to save some money.
Likewise, if you gave your freelancer a gift in exchange for his or her efforts, you might be able to write it off. Service-based gifts are not permitted, however physical gifts are often allowed as write offs. Talk to your accountant for details about what you can and cannot write off.
Making Tax Season More Productive
Most households dread tax season. If you want to stay productive and focus on your business without worry about accuracy on your taxes, we suggest hiring a professional. This person will be able to look at your income, freelancer relationships, and independent contracts to determine the most you can write off on your taxes.