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4 tax mistakes freelancers need to avoid

| Aug 9, 2017 | Audits |

A growing number of people are making a living as freelancers. In fact, a report from Forbes showed that freelancers currently make up at least 35 percent of the American workforce, and the total number of freelancers has risen to 55 million people. 

Many people make a great living freelancing, but there is a unique set of tax laws these professionals need to follow. There are common mistakes freelancers face, so they need to remain extra vigilant to avoid these typical pitfalls. 

1. Not reporting some income

Many freelancers get work from a wide array of clients. There may be some clients where they make less than $600 in a given year. Many freelancers assume that with such a low amount of income, it is not mandatory to report the income. However, that is not the case. All income needs to be on the tax forms, even if it is very small. 

2. Using wrong business deductions

Many freelancers attempt to reduce the amount of money they owe the federal government by writing off certain deductions. It is important to understand which ones are actually viable. For freelancers, only purchases that are 100 percent business-related can constitute deductions. If there is any doubt about that, then it is best to leave it off. 

3. Having too many neat numbers

Freelancers want to watch out for having nice, perfectly rounded numbers. While it may be accurate, the Internal Revenue Service may assume the person is making informed guesses. It is preferable to simply play it safe and provide accurate numbers rather than guessing. 

4. Overstating entertainment expenses

Many freelancers and typical business owners will try to write off meals, hotel stays and entertainment expenses on tax forms. Sometimes they are valid, but many people end up abusing this system. The idea is that deducting these items is viable if they were for explicitly business purposes, like trying to get a client to sign over dinner. Be careful of including too many on tax forms. 

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