Allow me to introduce you to Mr. Form 1099

Whether or not you do your own taxes, you should be familiar with the required forms, especially those that differ from a standard individual tax return. IRS Form 1099-MISC may be the most obvious way a freelancer’s taxes differ from the norm; if you’ve spent much time in the employment form, you’ll be used to the W-2 form, which employers use to report all sorts of things (your income, taxes withheld, Social Security, etc.). However, as an independent contractor on any given project, you’ll need a Form 1099 instead. Technically, the company paying you is responsible for filing a 1099, but you’ll need to fill out at least part of it. 

The IRS determines independent contractor status based on the following:

  • behavioral control
  • financial control
  • relationship of the parties

However, generally, if you think you are an independent contractor, you are. More information is available on the IRS website.

It is also important to note that you may not need to complete a 1099 for every business you worked for — only those that either paid you $600 or more, or made payments of $10 or more in gross royalties.* This includes contest winnings, estate settlements, court settlements and really any other time you received over $600 for anything.

There are other types of Form 1099 besides 1099-MISC, such as 1099-A and 1099-C. These are typically needed in situations such as debt cancellation and are not commonly needed.

Full instructions for Form 1099-MISC are available here (Warning: PDF!). You will also be responsible for reporting this same income on your Form 1040, Schedule C.

*You are also required to report any fishing boat proceeds on a Form 1099, for what it’s worth.

How long should you keep your files?

If you run any kind of business, you accumulate files — both electronic and hard copy — in staggering numbers. It can be overwhelming to even think about what to do with your paperwork, and there is a temptation to just pitch the whole lot. Unfortunately, you need to hold onto an awful lot of it, at least in the short term.

Any financial documents, especially those relating to your taxes, need to stick around for three years according to the IRS. Since your financial paperwork, which may include receipts, bills or tax returns, are hard copy, you’re going to want to consider a couple of factors when deciding where to keep them:

  • Is flooding a regular occurrence in your area?
  • Are there any local pests likely to nibble on your paper?
  • Are you going to be able to easily access specific paperwork without too much effort?

My recommendation for storing paperwork that you may not want in your filing cabinets are the types of plastic bins typically available at office supply stores, such as this one on Amazon.

Documents related to specific projects, such as contracts or research, need to kept at least until the client has fully accepted the project, and you have received payment in full. Personally, I recommend keeping all contracts and legal paperwork for three years, just like financial documents.

Research notes, interviews, etc. should be kept indefinitely, because that information can often be re-purposed for a new article or other project. However, to save on storage and worry, keep these files electronically — scan in notes or type them up, if need be. Electronic files are also easier to search for specific key terms.

Even if you can’t reuse your notes on a given topic, do not throw them away until it’s obvious that you will not need to refer to them for a given project. For example, if you interview a person for a specific magazine article, keep your notes for at least the length of time it takes for one additional issue of the magazine to hit the stand. If there are any corrections or disputes, you can refer to your notes.

If you keep many electronic files, take the time to back up your data regularly. It’s ideal if you can back up your material at a different location than you are currently at — but that can be as simple as burning a CD and dropping it off at a relative’s house.

3 Secrets for Easy Invoicing

If you don’t send out invoices, you can’t complain when you aren’t paid. Some freelancers, however, may be better at the writing side of business than the billing side. But there are ways to simplify the invoice process.

First, make out the invoice when you get the contract.* If you have a set rate for the project, you’re all set. If you’re working at a per hour rate, fill out everything else and simply add your hours as you work them.

Second, go over the invoice when you are ready to submit your article, project, etc. If you know who the invoice is going to, simply e-mail it or post it at the same time. If not, ask and send it as soon as you hear who it should go to — don’t put it on your list of things to do.

Third, save your computerized version of your invoice and print out a copy as well. The printed copy should get filed with your contract with the company in question. You should also add a reminder on your calendar or ‘to do’ list of when you need to follow up if they haven’t paid.

Now, these three steps will only help if you do them every time. They have to be ingrained habit.

*If you don’t have a contract with whoever you’re working with, well, you’ve got bigger problems than figuring out invoicing.

Diversify your portfolio

Diversity is the soundest investing strategy in the world, right? It’s what all the good financial planners tell you to do. It’s just as important in your personal portfolio — the one you use to get clients. 

Showing that you are capable of more than one type of job can get you get more work than you expect. Say you have the opportunity to work on a business’s newsletter. If they see examples of brochures in your portfolio, they may come back to you when they’re ready to put one together for themselves.

If your portfolio is varied, you have more options when it comes to finding your next gig. But how do you get those initial jobs, if you don’t necessarily have the experience?

I got my start on writing business materials for family — it was a reduced rate, of course, but I still got something. There are also non-profits always looking for help, and though many can’t pay, you can often donate your services and get a tax deduction — if you’re interested in grant writing, this can be ideal. Heck, you can write marketing copy for your own business.

Personally, I don’t like the idea of giving my work away for free, although many writers recommend the technique as the easiest way to build a portfolio. I’ve found, though, if you’re willing to start small, you can often still get some kind of payment.

Figuring out deductions

Why am I talking about taxes in the middle of August? We’ve got something like 8 months before we need to think about prepping our taxes, right?

Well, a little work along the way will make it easier to prepare your taxes come April. Personally, I like the idea of just getting the damn things done and over with, as soon as possible. Getting an extension just means I have to worry about it even longer.

One way to simplify things is to keep track of your business expenses now. If you’re using some kind of money management software, great! — your computer may do all the work. If you’re using paper and pencil, you still need to be tracking which of your expenses are deductible.

According to the IRS, “Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business is operated to make a profit.”  I don’t know about you, but I’m planning on making a profit here, if it kills me.

So, let’s take a look at exactly what we can write off.

  • Do you work from home? Well, as long as you own your house, you can write off a certain amount of expenses. Take a look at the IRS’ Publication 587 to determine just how much.
  • If you work from an office you rent, that expense is deductible.
  • Do you use your personal car to make business trips, even down to the post office? You can deduct set amounts depending on mileage. More information is available at the IRS’ Publication 463.
  • You can deduct travel expenses for conventions, and often other expenses as well, although if you take your family along, their expenses are not deductible.
  • You can deduct business assets — such as if you buy a new computer to work on.
  • You can also deduct insurance and retirement expenses — the government pays you to protect yourself!

Basically, all of these deductions boil down to the fact that you can deduct any normal cost of doing business. And you should! The typical freelancer treats her business as a sole proprietorship — the simplest business form there is — and simply files her business income as part of her personal tax return. This means choosing between a standardized deduction of $5,150 (this differs if you’re filing with your spouse or have dependents), or itemizing deductions. It’s good financial sense to take the largest deduction you legitimately can. Otherwise, you’re just giving extra money to the government. 

The Freelance Resume Conundrum

I bet you didn’t even know that there was a freelance resume conundrum, did you? It’s pretty basic – the typical resume format of objective, skills and as much employment history as you can come up with just doesn’t work for freelancers.

Say Betty is a freelancer – she has a regular gig writing for a local magazine, and another one blogging. On top of that, she’s always querying magazines and she has a fair number of clips. Now, in theory, it would be nice if Betty could get jobs based solely on those clips, because your writing abilities should be more important than how long you wrote for Regional Auto Magazine.

But a lot of editors want to see a resume, especially if you’re querying out of the blue. So, how can we give them a resume that doesn’t make us look like flakes that jump from publication to publication?

How about a template better suited to our needs?

  • List your name, email address and phone number.
  • Throw out the objective. If you’ve written an excellent query letter, you shouldn’t need an objective.
  • List publications your material has recently appeared in. A bulleted list should do well here. Think CV here, rather than resume. You can also list projects, such as PR campaigns here.
  • Your skill set should include styles you’re familiar with (AP, Chicago, etc.), topics you can write about effectively and any other related skills.
  • Include relevant work history, but don’t clutter it up. If you were a technical writer in corporate America, include it. If you flipped burgers, don’t.
  • Education is, of course, required. I’d recommend including internships and certifications under education, rather than giving them their own section.
  • You can list any affiliations you hold, such as the Freelancer’s Union or the Association of Women in Communication. It’s not necessary, though.

That sounds a lot less stressful than making Betty wonder if she should include that month she spent as a contractor with the local public relations agency under her work history.*

Make sure that you have good clips to send out with your resume, however. Examples of the excellence of your writing are more valuable than the most polished of resumes.

“Quantum meruit,” in the old tongue

Writing is my livelihood, and probably yours too. I have an expectation that I will receive fair value for my work, but there seem to be a lot of people out there willing to work for peanuts, or even less.*

Herein lies the concept of ‘quantum meruit‘ — reasonable value of services.  I’m mentioning it for more than a simple rant about the low payment offered by some individuals. It’s a very valuable little piece of contract law that might help you out in your many productive years of freelancing.

There are two situations in which the idea of quantum meruit is applicable.

  1. If a person is employed (expressly or implicitly) to work for another without any agreement as to his compensation, the law considers it an implied promise on the employer’s part to pay the worker for his services.
  2. If a worker has a contract with an employer, and the employer halts work, generally the worker is entitled to compensation for the work he has already completed.

Contract law has a few more nuances, and I do recommend that you get some legal advice before threatening to sue a non-paying editor. But there it is — you have a right to be paid, even if you don’t have a contract or a set rate. You also have a right to be paid for killed work, although it is a bit more complicated — since you maybe able to sell a piece to another market, you may not be able to collect any payment.

*Perhaps peanut shells?

Word Count: August 16, 2007

1,494 words feel good, although, unfortunately, it wasn’t a power of 2 like yesterday’s count. Even if I didn’t get any comments over here, apparently all my geeky friends noticed. I feel very validated.