Most people believe that freelancers do not have to deal with taxes, mainly because their job description differs from that of a standard entrepreneur. However, this is not the case. So, to answer the question – Do freelancers charge tax? Yes, such a self-employed individual must adequately comply with all tax regulations laid down by the StStaten in which they operate.
However, as a freelancer, you can reduce your tax bill and save hundreds of dollars.
Even though a freelancer’s taxation process is not complex, many individuals have difficulties understanding Sales Tax and use tax and need to consider these two types while filing their tax returns. To provide a better view on the topic, what these two types mean to freelance has been mentioned next:
Do I need to charge tax for freelance work?
Yes, freelancers must pay self-employment taxes in addition to regular income taxes. However, in the US, you will pay self-employment taxes only if you earn $400 or more.
This tax type will apply to tangible personal properties and services purchased outside the freelancer’s State. The product/service in question should be bought from any State other than where it will be used. In the case of a freelancer, use tax is also applicable if the State from where the product/service was sold does not collect sales tax.
A freelancer must also deal with the use tax if the sales tax in the freelancer’s operating StaStateState is higher than the sales tax rate in the StaStateStateere where the product/service was sold. Use taxes apply to all freelance professionals, including sole proprietors, individuals, and LLCs. They are also applicable to consumers and businesses.
Do freelancers Charge Sales Tax?
No, freelancers do not charge sales tax because they offer services, not products. Because of that, most US states don’t allow you to charge sales tax on services. If you are a freelance webmaster, you should not expect to pay sales tax on freelance writers.
On the other hand, this tax type will apply to retail-sold tangible personal property and services. In the case of use tax, a freelancer also needs to file sales tax returns if the freelancer happens to collect sales tax. So, if you are collecting sales tax and use tax, you need to get a sales tax license/permit. When freelancers apply for the license, they also receive a sales tax identification number depending on the State frStateere they will be operating.
Factors affecting use tax and sales tax for a freelancer
As these two types will apply to freelancers, they must get familiar with the different factors influencing both of these taxes:
The StaStateere, the freelancer, will operate will affect the individual’s land use and tax. Tax regulation will vary from one State toStateher. Having a sales tax exemption certificate is also another factor. Based on the State you are operating from, the certificate comes into effect when the final product/service sold is subjected to sales tax.
In most cases, the seller should have a Certificate of Authority if they want to accept the exemption certificate. The type of product and service that the freelancer is involved with will also affect sales tax. This tax is only applicable to tangible goods and services. However, the list may differ from one State toStateher.
Besides these, many other factors can affect both use tax and sales tax for a freelancer. Knowing and understanding these factors will provide insight to help you handle the taxation procedure more effectively and accurately.
Tax deductions in the USA for a freelancer based on the IRS are:
- Advertising and marketing
- Computer equipment and software
- Office Supplies
- Home office
- Utilities
- Travel and business meals
In the rest of the world (EU, for example), freelancers have 5% to 15% smaller taxes than other LLC companies.
As a self-employed individual, the taxation responsibility falls on the freelancer, who can be overwhelming. Thus, you should get professional help to better understand the entire thing and, most importantly, file and submit the related tax documents accurately and on time per your State’s Laws.
After leaving Wells Fargo Bank in 2014, Daniel began a career as a finance consultant, advising companies and individuals on economic policy, labor relations, and financial management.
At Nimblefreelancer.com, Daniel writes about personal finance topics, value estimation, budgeting strategies, retirement planning, and portfolio diversification.
Read more on Daniel Smith's biography page.
Contact Daniel: daniel@nimblefreelancer.com