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Self Employment and Taxation Issues

Jun 12, 2008
Being a freelancer or doing some part time freelance work is great for most of us. It supplements our income and makes sure that we always have enough to pay our bills and live the life that we have always wanted to live. But all this said and done, the headache is our tax returns and most of us don't have a clue as to how to include this freelance income. But the first question is that are you even considered a freelancer or an individual contractor?

Hobbies have often turned into goldmines for a lot of people. Many have made fortunes out of their hobbies like philately, article writing, photography etc. And most of these people did it only after their regular 9-5 work hours.

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.

As an individual or a freelancer you need not worry about registering yourself anywhere with the state or the local authorities. An individual is always considered as an all liability firm wherein the individual working (as a freelancer or full time) is the whole and sole responsible person. Such an individual is also called an independent contractor because he or she is not bound by the rules and regulations of any particular company and is free to take every decision regarding the task at hand.

But once you decide to call the shots and hire a few people to work for you, it becomes a bit complicated. You now must get your firm registered with the local authorities and start doing all the transactions in the name of the firm and not yourself or an individual.

A lot of people in a bid to start their company and build a brand name rent an uptown commercial space and spend thousands of dollars in buying expensive furniture which can be easily done without. We all must understand that the brand name is built by a lot of other factors and not only where or how your office looks. These two things perhaps come in the last.

Also, do not believe when somebody says that being employed in a 9-5 job makes you ineligible for being covered under self employed status. What you do apart from the job hours and on holidays for making those extra dollars will always be considered as a side-business in the eyes of the government.

Also, just because you are a freelancer, does not mean that your income is not liable to being taxed. You must file your income tax returns even on your freelance income and if possible get your company registered to avoid any kind of legal issues that may arise anytime in future.

More information regarding the various taxation and other issues related to self employment is available on www.irs.gov/business.
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