Like all forms of employment, freelancing has perks and shortcomings. But without a doubt, filing your taxes as a freelancer is one of the most obnoxious and time consuming ordeals you’ll have to deal with. I hate filing taxes so much, I made a video about them last year. (President Obama did write me back, but he never paid the invoice…) The point is, never have I ever—not even in TVF 361: Working in Film as a Freelancer—received any education about filing taxes as a freelancer. So if you do plan on going down this dark and terrifying path, I’d like to give you some pointers.
DISCLAIMER: I am not a tax expert. Anything you learn from this article is for informational purposes only. Do your own research and consult with a tax professional for your own specific tax situation.
If you earn money, you pay taxes. You generally owe taxes to 3 governmental agencies: the federal government (IRS), the state government (in my case the Pennsylvania Department of Revenue), and your local city, town, borough, hovel, whatever. Usually, your employer takes these taxes out of every paycheck. That’s why when you received your first job in high school, you were shocked to find out how little money you actually took home.
However, even if your employer doesn’t take this money out, you still owe taxes! At some point, someone’s going to come looking for that money. It’s up to you to make sure you’re paying the right amount of money on time. Keeping detailed records is the name of the game.
As a freelancer, you’ll have 2 basic kinds of employers: W-2 and 1099. Both are named after the tax forms you receive at the end of the year.
When it comes to taxes, W-2 jobs are a little bit easier. These are the jobs where the taxes are taken out for you. In the biz, they are also called timecard or payroll jobs. These are the kinds of employers that most of your relatives and friends with “real” jobs have. For us, things are a little confusing.
The thing is, most production companies don’t want to pay for accountants. They use payroll companies to take care of their paperwork. CAPS, Entertainment Partners, and Cast and Crew are three of the big ones. So even though you work for Mom & Pop Productions, The Josés Film Co., and Hollywood South, LLC, you might get W-2s from CAPS, Entertainment Partners, and Cast and Crew. To make it even more confusing, Mom & Pop and The Josés may use the same payroll company. Then every job you did for both of those companies will appear on the same W-2. (Last year, which was a slow year for me, I worked for 17 different companies and received 6 different W-2s.)
If your employer just hands you cash or a check, this is called 1099 or invoice work. Generally, you’ll have to send the company an invoice, and then they’ll send you a check. This check will be for the full amount of the job. (If you invoiced them for $250, you’ll receive a check for $250.) Even though your employer didn’t take taxes out of your paycheck, you still owe taxes!
You may think tax season is early April, but for freelancers, it’s always tax season. The thing is, you owe taxes as you earn money, not at the end of the year. For W-2 work, those taxes are taken out every paycheck, and you’re golden. But for the 1099 work, you need to estimate how much money you’ll make and send out those estimated payments quarterly. (Remember, you owe federal, state, and local taxes.)
The four payment dates this year are April 18th, June 15th, September 15th, and January 15th. The perplexing thing is that quarter two is 3 months long while quarter four is 5 months long. Clearly no one at the IRS had my mother for math, since “quarter” implies four equal parts, but I digress.
Your estimated payments aren’t what you will actually owe because your tax rate is based on what you earn, and on April 18th, no freelancer I know has any idea how much money they’ll earn in the next eight months. There’s a lengthy form to help you estimate your quarterly payments (which I have found utterly useless) called the 1040-ES. I’ve included a link to it below.
FILING YOUR TAXES
If you haven’t had enough fun yet, there’s tax day! When you “file” your taxes, you’re squaring away all of those uncertainties you’d had from the previous year. You find out what you actually earned, deduct what you can, and end up with your Adjusted Gross Income (AGI). Some people use accountants or tax professionals. Most tax professionals charge more as things get more complex. Since I didn’t make much money when I started in this business, I began filing my own taxes with the help of TurboTax. So far, so good.
For the most part, you just enter all of the data from your W-2s and 1099s. Remember to report income even if you didn’t receive a 1099. (Keep in mind, Al Capone was ultimately arrested for tax evasion, not murder.) And remember to report those quarterly payments you made. The software will do the rest.
Everybody is allowed to take a variety of personal deductions. Charitable donations, student loans, and mortgage interest come to mind. Many people will take the standard deduction because it’s easier and often bigger than an itemized deduction. But as a freelancer, you also have unreimbursed business expenses. Even if you take the standard personal deduction, you have plenty of additional business deductions.
These deductions may include, clothing, food, work tools, mileage, and even your house. There are rules and regulations for each thing, but a general rule of thumb is, if you use it exclusively for work, it’s deductible. I’m writing this from my home office, where I do all of my paperwork. I could potentially deduct the utilities for this room, but I use it for a guest room as well. Sadly, no deduction for this one. But that rain gear I bought exclusively for set? Deducted. Flashlight, surveillance headset, and Leatherman? Deducted. That Box of Joe I bought for the locations department to ensure I had good parking on the last shoot? Deducted. Make sure you save those receipts!
Mileage can also be deducted, whether that’s driving to another state for a job or running out to pick up lunch for the crew. As with all of these things, however, you need to keep detailed records.
And of course, if your employer reimburses you for any of these expenses, you cannot deduct them.
STATE AND LOCAL
Generally speaking, state and local taxes operate similarly to federal taxes. There are slightly different rules for each, so you’ll have to do your own research on that one. But here’s one small positive; programs like TurboTax have software for states, and most of the information transfers seamlessly from federal to state forms. One caveat, if you work outside the state where you live, you may need to file taxes in both states.
Local taxes are generally the easiest. You’ll simply need to transfer numbers from your federal or state tax form onto your local tax form. Unfortunately, W-2 employers will deduct local taxes from where you work, not where you live. It may take a bit of arithmetic to figure out what, if anything, you owe your local government. (For example, my borough has a 1% tax rate, but if I work in Philadelphia, Philadelphia takes 3.5% of my paycheck. I’m never going to see that 2.5% again. However, I can use it to offset the taxes I owe to my home borough from my 1099 work.)
DEATH AND TAXES
Taxes suck, no matter who you are. But if you plan to make this filmmaking thing work, they’re one more unforeseen hurdle you have to jump over. The most important thing is to keep detailed records and save paperwork. And speaking of paperwork… below are links to some of the forms you’ll encounter in your illustrious career. Check them out so you know what you’re looking at.
Finally, I’d like to reiterate that I am not a tax professional. If anyone who reads this post has other thoughts and comments, feel free to reach out or respond.
When doing W-2 work, the W-4 tells your employer what to withhold in taxes. You’ll receive this on set either when you’re hired or when you fill out your timecard. There’s an obnoxious worksheet to calculate how many allowances to claim (probably 1 or 0). If you claim 0, your employer will withhold more taxes, which means you’ll likely get a refund at the end of the year, but see less money in your paychecks.
When doing W-2 work, the I-9 verifies that you are allowed to work in the U.S. Most people only fill out a handful of these in their lives. You, however, have to fill one out every year for every employer. That is why I have my driver’s license number memorized. However, if you work for a new company, you’ll want to be sure to bring your 2 forms of I.D. (Click on the second link on the USCIS website to view the form.)
Here is a blank, sample timecard from CAPS. Generally, you’ll only fill out your personal information and the hours you worked. Your production manager will help you with any questions.
You’ll receive this in January or February. It shows how much money you earned, what you paid in taxes, what you paid for Social Security, Medicare, state, and local taxes, etc. from the previous year. It’s very easy to transfer this information into a program like TurboTax. (This W2 is blank. Yours should come with numbers on it!)
This is identity verification for a 1099 job. (I-9 is to W-2 as W-9 is to 1099… where’s 3 through 8 in all of this?) Generally, you’ll need to send production one of these when you send them your invoice. Unless you are incorporated as a business, check the box that says “individual/sole proprietor” and fill in your social security number.
This is what you get at the end of the year for your 1099 jobs. As with the W-2, it’s very easy to enter the information from this into a program like TurboTax. (And again, yours should come with numbers on it!)
I’d say this is where you can flex your creativity because you get to make your own invoice, but that would probably just annoy your production manager. Generally, you just need your contact info, the company’s contact info, the job name and number, and days and hours worked. This is what I use. It’s not pretty, but I always get paid (except for the one I sent to Obama…).
This is the monstrosity that “helps” you estimate your quarterly taxes. In the least it shows you what is legally required and gives you a place to write down when you sent the money in.