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Tax Breaks

Tax Tips for Freelancers and the Self-Employed

Don't overlook these forms or deductions when filing for self-employed income.

I had some freelance income in 2011, in addition to my regular full-time job. What forms do I need to file at tax time, and what can I deduct?

Get ready for a flurry of paperwork when you have self-employment income. You’ll need to submit Schedule C along with your Form 1040 when you file your taxes. You can use the shorter Schedule C-EZ if you have no employees and no home-office deductions and your business expenses total $5,000 or less. If your net earnings are more than $400 for the year, you’ll also need to file Schedule SE to figure your self-employment tax, which includes Social Security and Medicare taxes.

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But you can also deduct a lot of your expenses, including the cost of a computer, printer and other equipment you use in your work, plus the cost of work-related phone calls and mailings, office supplies, duplicating, advertising and business travel. You may also be able to deduct your health-insurance premiums if you aren’t eligible for health coverage from an employer or your spouse’s employer. See IRS Publication 334 Tax Guide for Small Business and the Instructions for Schedule C for more information about what is deductible.

If you dedicate space in your home exclusively for a home office, you may be able to write off a portion of your mortgage interest or rent, homeowners insurance, and utilities (based on the percentage of your home or apartment used for your business). See IRS Publication 587 Business Use of Your Home for details.

You can also make tax-deductible contributions to a self-employed retirement plan, such as a Simplified Employee Pension (SEP) or a solo 401(k). See Best Retirement Plans for the Self-Employed for more information.

If you continue to earn freelance income this year and expect to owe taxes of more than $1,000 when you file your return, you may want to boost your tax withholding at your salaried job or make quarterly estimated tax payments to avoid a penalty for underpayment next year. See the Instructions for Form 1040-ES for details and worksheets.

For more information about taxes for freelancers and other self-employed people, go to the IRS’s Small Business and Self-Employed Tax Center.

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