Ask the cubicle expat: If a client paid me less than $600 in 2007, do I have to report it?

January 27th, 2008

Denis writes: I’m 23 and just started doing freelance work this year. I did work for three different clients and I didn’t receive more than $600 from any of them. So I’m not going to receive a 1099 from any of them. Do I still have to report that income? If so, then can I deduct expenses such as internet and computer accessories? I just wanted to know what you think based on your past experiences.

I answer: Congrats on starting to freelance. Exciting! As for your question:

(1) From what I understand, and what an accountant once told me when I was starting out more than a decade ago, technically you have to report to the IRS (pay taxes on) any income you earn as a freelancer. Your clients might report that they paid you $200 for a job, and through its omniscient brain, the IRS could catch wind of this and come after your self-employed ass for the money it’s due. Or something like that.

That’s not to say I haven’t heard of freelancers doing the occasional one-time $100 job they knew the client wasn’t reporting and electing to keep that information to themselves, not that I’m advocating trying to screw the government out of its hard-earned war funding or anything. Mess with Uncle Sam at your own risk.

(2) Without being a financial professional, and without knowing your situation, it’s impossible (and professionally irresponsible, not to mention risky) for me to advise you what to do. But here are a few questions for you to ask yourself:

  • Do the city and state in which you live require you pay business taxes? If so, you may owe them money too. Check your city and state licensing departments to find out.
  • How much income are we talking about anyway? If it’s just $100, you might be able to go away quietly into the night without any political entity being the wiser (see above), not that I’m advocating you do. If it’s $1,500, I suggest you talk to a tax pro who can advise you how much to pay up. H&R Block has a free “Ask a Tax Advisor” service on their site that might be helpful. Or you could get TurboTax, which supposedly walks you through every little detail of filing your taxes.
  • Do you also have a full-time staff job that’s taking taxes out of your paycheck? How much you’re already sending to the IRS through your day job might affect how much you’ll owe on your freelance earnings. Again, a tax pro who’s looking at the big picture is your best bet here.
  • And finally, how much are your business expenses? Yes, you can claim the internet bill and computer accessories if you’re claiming the freelance income. But if the expenses exceed the earnings, you might not owe Uncle Sam any money. Maybe. I dunno. But you still may need to file a form. Maybe. See why you need to talk to a tax pro?

(3) I can’t stress this enough: Don’t rely on people like me who don’t work as CPAs, CFPs, or bookkeepers for fine-grained advice on how to file your taxes. You need to talk to a professional who can assess all the variables of your individual situation and tell you what to do. Or you need to get a program like TurboTax to walk you through it. Don’t give the IRS a reason to audit you, which would only land you in an accountant’s office anyway.

AFTERTHOUGHT: You may also want to read this post, on business licenses and the IRS definitions of “hobby” and “business.”

Got a question about self-employment or career change I don’t need a financial degree to answer? Ask away.

Entry Filed under: Ask the Cubicle Expat,Money honey

3 Comments Add your own

  • 1. Charles a. Wesley  |  February 3rd, 2008 at 4:56 am

    I used turbo tax and it was great in 15mins and was done.

  • 2. The Anti 9-to-5 Guide &ra&hellip  |  February 25th, 2008 at 10:57 pm

    [...] You can find more of my freelance tax FAQs here and here. And you can find an accountant by asking your freelance friends who they use. [...]

  • 3. Bookkeepers Now  |  October 1st, 2009 at 1:56 pm

    Good advice Michelle! Denis you need to talk to a professional.

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Hi, my name's Michelle Goodman and I've been freelancing since 1992. I'm author of My So-Called Freelance Life and The Anti 9-to-5 Guide. Read my full bio here.

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