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  1. #1
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    Freelance coding and the IRS

    So this is a question for people living in the US.

    I'm a freelance web coder and I'm wondering if I have to file my earning or anything like that with the IRS for my "business"?

    Thanks.
    Last edited by Sman5109; 12-15-2008 at 11:28 PM.
    Not much, but its something.

  • #2
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    Yes, you do.

    The form you use depends on how your business is organized. Based on your question, I'm assuming your business is a sole-proprietorship, ie: you have not formed a Partnership, Corporation, LLP or LLC.

    If this is correct, you will need to include Schedule C and Schedule SE with your Form 1040. You may also need Form 4562 - Depreciation and Amortization, and Form 8829 - Expenses for Business Use of your Home and possibly Form 2210 - Underpayment of Estimated Tax.

    Schedule C and, if needed, Forms 4562 and 8829 will help you determine the amount of 'Taxable Income' you must report on form 1040. Schedule SE will help you determine how much Self-Employment Tax (the equivalent of Social Security and Medicare) you will owe in addition to any income tax.

    Also, under certain (many) circumstances, you may have to pay a penalty for not estimating your Tax. For this, you'd need Form 2210.

    Edit:
    I should add, that in addition to reporting your income to the IRS, you will also have to report it to and pay tax to your State (in most cases). Generally, although not absolutely, the states base the taxable income from your business on the amount determined for the IRS. Of course, specific rules and form numbers vary by state.

    Also, you MAY be subject to a Local Income Tax, Local Earned Income Tax or similar tax for the city / town / borough in which you live. These vary widely from locale to locale.
    Last edited by PappaJohn; 12-14-2008 at 05:27 AM. Reason: additional info

  • The Following 3 Users Say Thank You to PappaJohn For This Useful Post:

    FWDrew (12-14-2008), oesxyl (12-14-2008), Sman5109 (12-14-2008)

  • #3
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    Well that doesnt sound like good news at all.

    So if I dont do all that its not like the IRS is going to care or know about it... And I wont have to pay any taxes other then paypal's.... Right?

    Seriously, lets take a vote, how many freelance coders have done this?
    Not much, but its something.

  • #4
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    Quote Originally Posted by Sman5109 View Post
    So if I dont do all that its not like the IRS is going to care or know about it... And I wont have to pay any taxes other then paypal's.... Right?
    Well, I've owned a Tax Consulting firm for 30 years. I certainly wouldn't be doing you any favors telling you to ignore the income. The scary part is PayPal. Anytime a payment is tendered in ANY form other than cash, there is a trail.

    The fact is, there are many ways to get caught. The IRS doesn't have to know about it.

    I've seen many people get away with "under the table" businesses for many years. I've also seen quite a few people get caught pretty quickly.

    The real problem is in the "getting caught" - that can get extremely expensive. Typically, you would not be caught for at least several years (3 or 4), the reason being that IRS typically runs that far behind in actually looking at any returns. By then, you've already incurred 3 or 4 years worth of interest and penalties - and there are several classes of penalties to which you could be subject. In addition, the IRS can, and frequently does, go back and audit the prior 6 years and any future years that have already been filed. If they have reason to suspect fraud (the acceptable reasons are quite specific) they can audit every year of your life. The risk is that while in a criminal court you are considered 'innocent until proven guilty' in front of the IRS and in tax court you are considered 'guilty until you prove yourself innocent'.

    I won't get into all the gory details, but I've yet to see anyone who got caught who thought it was worth it. I've seen people go to prison over taxes.

    Not all of your income would be taxable. In fact, there are quite a few write-offs, depending on your situation.

    Your call, of course. I don't know your situation, but what you're considering is risky. You'd be well-advised to discuss this with a qualified tax professional.
    Last edited by PappaJohn; 12-14-2008 at 06:28 AM. Reason: additional info

  • #5
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    Lets say that instead of receiving payments for my coding, people instead "donate" to my website with a "recommended donation". Would this let you skip by or are donations required by the IRS to be reported too?
    Not much, but its something.

  • #6
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    Even if you are a bona fide charity, donations are reportable. A proper charity would not have to pay taxes on actual donations, but for an individual they would be treated exactly the same as other self-employment income.

    In addition, the fact that a donation was made in exchange for services rendered would negate the "donation" concept. It is earned income plain and simple.

    Also, attempting to bypass the income tax laws in this manner would qualify as "Defrauding the US Government" - a very ugly charge.

  • #7
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    Is there a minimum amount of money needed to have to do all this? Lets say I make $1 a month.
    Last edited by Sman5109; 12-14-2008 at 07:10 AM.
    Not much, but its something.

  • #8
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    I know I'm not giving you the answers you're hoping for, but no, techinically there is no minimum income before you are obligated to report it.

    Of course, an income of $12 per year, in most cases, would result in no tax liability.

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    Well I think I have all the (unfortunate) information I need.

    Thanks Mr. Tax Guru for all your help!
    Not much, but its something.

  • #10
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    Tax information is usually unfortunate information.

    You're welcome

  • #11
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    For one of my freelance jobs I did for a company (NJ-based company, I'm based in Croatia), they told me there'd be tax implications if it was over $500, but IDK how this relates to the freelancer's responsibilities.

  • #12
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    Quote Originally Posted by croatiankid View Post
    they told me there'd be tax implications if it was over $500.
    Honestly, taking advise like that from the company who's contracting you is very risky. They often don't know what they're talking about, or will intentionally mislead you to make the contract appear more attractive - I've seen both cases numerous times.

    Actually, the amount they were referring to is $600. Depending on a number of circumstances, after that amount they are required to notify the IRS of the amount you earned.

    This, by no means, suggests that amounts under $600 are not taxable, especially when the payments can be tracked (such as paypal, credit cards or even checks). It's just that at $600, they incur more work (ie: reporting requirements to the IRS).

    I've seen companies use that "tax implications after $600" to try and negotiate a smaller fee.

  • #13
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    Quote Originally Posted by PappaJohn View Post
    Honestly, taking advise like that from the company who's contracting you is very risky. They often don't know what they're talking about, or will intentionally mislead you to make the contract appear more attractive - I've seen both cases numerous times.

    Actually, the amount they were referring to is $600. Depending on a number of circumstances, after that amount they are required to notify the IRS of the amount you earned.

    This, by no means, suggests that amounts under $600 are not taxable, especially when the payments can be tracked (such as paypal, credit cards or even checks). It's just that at $600, they incur more work (ie: reporting requirements to the IRS).

    I've seen companies use that "tax implications after $600" to try and negotiate a smaller fee.
    honestly that site was for a friend of a friend, but thanks a lot for that info. but do they have to notify the IRS regardless of the fact that i'm not a US citizen or permanant resident (or resident at all for that matter at this time)?

  • #14
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    International business is certainly changing things.

    In fact, since you are not a US citizen, they really would not be able to report your earnings in the same way. Besides, the IRS has no jurisdiction over you, and the company would not be required to report the income to any outside government.

    That said, this can be a very complex area. Generally speaking, the burden will be on the company, not you.

  • #15
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    I was always told that as long as you don't make over $600, you're fine. I will definitely look into it. I have no records of any income from last year as my house burnt down, so I guess I'll just start fresh this year.


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