Tax Tips for Freelance Attorneys
There are many perks to life as a freelance attorney, but it can make filing taxes a bit confusing, especially your first time around. Since the Internal Revenue Service (IRS) considers freelance attorneys to be self-employed, you must file your taxes as a business owner. While you can take additional deductions if you are self-employed, you'll also face additional taxes, namely the self-employment tax. Here are a few important considerations when filing your taxes as a freelance attorney:
The Income Tax
Classifications are important. A W2 employment classification means you are an employee. A 1099 classification means that you are an independent contractor. When you’re filing as freelance attorney, you’ll need a 1099 form, not a W2 form.
As a 1099 contract attorney, i.e., an independent contractor, you're not an employee, and there is no employer to withhold taxes from your paycheck. As a result, your income tax payments are your responsibility.
If you expect that you’ll owe $1,000 or more in taxes when you file your return, the IRS will require that you make quarterly estimated tax payments. These quarterly payments are used to pay income tax and self-employment tax. If you don’t pay enough through withholding or through quarterly estimated tax payments to cover your tax liability, then you will be charged a small penalty by the IRS. Be careful, this penalty can add up over time.
The Self-Employment Tax
When you work as a W2 employee, you only pay half of the Social Security and Medicare tax required. The other half of the tax is paid by the employer. However, now that you’re working as a freelance attorney, you are your own employer and responsible for the full tax. This tax adds an extra 7.65%, meaning your total self-employment tax will be 15.3%.
Business Deductions For Freelance Attorneys
When you work as a contract attorney, you are able to deduct expenses for doing your work, which include things such as:
Home Office Use: If you work from home, your home office is a deduction that can save you a lot of money. Measure the total square feet of the space used for your office, and divide that by the square footage of your home. This is the percentage of your home related business expenses that you are able to claim. These expenses include rent, homeowners insurance, utilities, mortgage interest, etc.
Commuter Expenses: The costs of driving or taking the train to work can add up quickly depending on where you live. As a self-employed attorney, all or a portion of these costs may be tax deductible.
Office Equipment: Items such as computers, printers, and office furniture are all tax deductible. If your business is profitable, you can either take 100% of the deduction up front or elect to claim the depreciated value over time. If you choose to claim depreciated value, you’ll need to file Form 4562 with your tax return.
Health Insurance: When you work as a freelance attorney, chances are you’ll have to get your own health insurance if you want more than co-insurance with a low yearly maximum. Luckily, your health insurance costs and premiums are usually fully deductible if you’re a self-employed individual.
Business deductions reduce your tax liability. Make sure you’re taking advantage of this by carefully tracking your spending and keeping receipts. It is a good idea to set up a business checking account, or even a business credit card. This will help you keep your business expenses separate. That way, if you get audited, it will be easy to prove that your business and personal income and expenses are separate.
In order to get the most out of your career as a freelance attorney, it is important that you’re tackling tax season correctly. Spending the time to learn how to file your taxes as an independent contractor will help you earn more, save more, and stay on the right side of the law when it comes to your taxes. The preceding information does not constitute legal advice. The process of filing is a complicated task, and in every situation, it is completely dependent on your facts and circumstances. It is highly recommended you talk with a tax professional.