It appears that the gig economy is here to stay. As life gets more expensive, more people turn to freelance work to make ends meet. Even people with salaried jobs often also have a side hustle. As good as it feels to make money from freelancing, it is disturbing when the IRS charges you huge tax obligations on your 1099 income. The best thing you can do to void unnecessary tax burdens for freelancing is to get an EIN from the IRS-EIN website. It is the same site where people apply for IRS estate Tax ID numbers.
Sole Proprietorship Is a More Businesslike Way of Saying Self-Employed
Don’t think of each of your freelance gigs as its own gig. Think of them all together as a business. Now think of the money you spend keeping your freelance work going. It’s starting to sound more and more like a business, isn’t it? If you work as an independent contractor or freelancer on several different projects, you should incorporate as a sole proprietorship. It is in your financial interest to do so, because your expenses related to your freelance work can be tax deductible. You should get a sole proprietor Tax ID even if you have a salaried job that issues a W2 in addition to your own freelancing business.
Do You Employ Other People?
According to the IRS, hiring a babysitter or housekeeper is much like having a freelance business. The best way to categorize your expenses related to child care is to treat your household as a business for tax purposes. Your child care expenses can become part of the expenses of the sole proprietorship.
Incorporating a freelance business can save you money on taxes. It can also make your business look more professional.