I’m transitioning from a salaried position at $40k/year to freelancing that may pay as little as $25k/year. What will change about the process and how much can I write off for a home office, office equipment, etc?
By freelancing, I assume you mean self-employed. Assuming this is the case, go to the IRS website and download schedule C as this will be the form you will be required to file as a self-employed individual. Review Schedule C in its entirety and try to make some estimates as to what legitimate business expenses you can deduct against what appears to be a gross income of about $25,000. There are a lot of things that can be deducted but the one you should be careful of is the home office deduction which can come back and bite you if and when you ever sell your home. It's a little too detailed to discuss this isseu at this time. However, using $25,000 as your gross income, estimate your expenses to get to the net income at the bottom line. Once you get here, this net income is carried over to the front page of your 1040 as taxable income. In addition, the net income on the bottom line will be subject to both Social Security and Medicare taxes which amount to approximately 15.3% of your net income. In other words you'll have to pay both the employer and the employee side of Social Security and also the Medicaid tax when you file your tax return and these taxes are in addition to any income tax that would otherwise be owed. Don't fear being self-employed but be careful you understand how self employed income is taxed rather than surprised. Good luck.'
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