Self Employment and Taxation Issues
One of the most prominent questions that arise in our mind during the tax filing days is regarding our total liability. Often we are in a dilemma as to how to adjust that income generated from blogging or as some freelance work done over the weekends to supplement our monthly income. Often we are just confused as to what deductions and exemption we are allowed on our side incomes.
Quite a lot of people have made fortunes from their hobbies like stamp collection, artifacts collection, photography, copywriting etc. But most of these people were doing it after their job hours as just a time pass and to generate a few extra dollars.
As per IRS, a self employed person is one who wholly and solely owns the business and makes all the decisions about how to run the show. Independent contractors selling goods and services are included in this list because they are the ones who decide the way in which it will be done.
You don’t need to register yourself with the government or open a bank account in the name of any firm if you are a self employed person. A lot of people are involved in doing freelance works like copywriting, photography, translation etc and are considered as an equivalent to an independent contractor.
Thus, as a freelancer you can operate out of your living room. But, if you decide to start a firm and employ some other people, you must get your company registered with the state government. A company basically represents a brand. It is no longer associated with an individual and the services or the product that you provide becomes a commodity which others want to buy because of its quality.
One of the biggest misconceptions of most of the people making this kind of a shift from freelance to proper business is that they should have a posh office space. A lot of people spend thousands of dollars unnecessarily on buying costly office furniture only to rue it at a later stage when they don’t see so much inflow of funds. Most of the successful businesses have started out of garages and kitchens. It’s the quality of work and not necessarily the work environment that will make you successful.
But just because you now have decided to start a company and build a brand name you will rent an office in a posh commercial street and fill it with expensive and designer furniture. An office is a place where you design your product or offer your services from and how it looks really doesn’t matter as long as you can provide good quality.
You can always be a freelancer or an independent contractor even if you are involved in a 9-5 job. Whatever income you make apart from your work hours will be considered as income generated from independent contracts and will be liable to being taxed in the similar manner and not as your salary that you receive from your 9-5 employer.
More information can be found at www.irs.gov/business.
Filed under: Business