Discussion:As a freelancer, what taxes can I expect to pay?

BTW, what part of MI are you in? Several of us are in/from MI.

Also, someone told me that if you made under $8,600 a year, you wouldn't owe taxes to the Federal Government, but maybe at the local or state level. Is there a minimum for the state level where you have to pay taxes?

Thanks

Check your local Chamber of Commerce and library for books about "starting a business". There's usually a lot of info there about record keeping, finances and taxes.

In looking at the numbers you have used as examples, sounds like maybe you're not capturing all your expenses. $4,000 income with a profit of $3,200 only leaves expenses of $800. You purchased a laptop and hired someone. I believe your expenses may be more than $800.

You may be subject to a city income tax, depending on where you live. Generally the base is federal adjusted gross income less a personal exemption ranging from $600 to $2,000 depending on the city. Rate is generally 1%, though some cities are 1.5% and one or two are 2%.

Also, I have a web site for my services. It costs about $205 a year for expenses for that. Would that be considered deductible? I live at home with my parents, so I don't have to pay for electricity or the internet. All I have had to pay for was a laptop, the web site expenses and then hiring a person to write some. I think total this comes to around $1,000($678 for the laptop, $200 for the web site and about $200 for the person who wrote the articles).

When I file, do I also send in the proof for my expenses? Or is that something that I just send in if they question the expenses?

Thanks!

The site which I work through as a freelancer will be sending me a 1099 at the end of the year--all my earnings are reported to the IRS. Since I'm a newb to this whole thing, what else will I have to fill out besides that?

The 1099 you get from the web site will be your gross income from this business, which you will report on Schedule C on your federal and Michigan individual income tax returns. Keep track of your expenses, which will also be reported on Schedule C. You don't need to send the backup with your income tax returns, but be sure to keep your records in good order in case anything is questioned.

Your net income from this business will be subject to the self-employment tax, which is reported and paid along with the federal income tax and is the equivalent of both the employer's and the employee's halves of the Social Security and Medicare taxes. That's 15% right off the top, in addition to any income tax liability you may have, so be prepared for that.

You should visit with a local tax adviser now. For a small fee a local CPA or EA will help you understand your obligations and set up your records so that tax time will be a breeze <G>.