Beware the Ides of April Tax Tips for Freelancing During Your Unemployment

Beware the Ides of April Tax Tips for Freelancing During Your UnemploymentBeware the Ides of April Tax Tips for Freelancing During Your UnemploymentLooking to pick up contract work while youre looking for the next steady paycheck? Dont forget a few significant differences in how that income is taxed.Youre between full-time gigs and looking to stay in the game - or maybe even considering freelance work as a longer-term employment option. What do you need to know to prepare for next years tax bill?The big difference between a full-time job and freelance work is that youve become a 1099 instead of a W-2. Full-time employees receive a W-2 form from their employers listing their wages and deductions. Freelancers and consultants receive a 1099 form from their clients.Consultant income tends to come in erratic spurts. Keep track of them and try to set aside 30 percent to 35 percent for your tax obligation how much you will be obligated to pay will depend on how much you earn, deductions an d other factors. Its painful to take away anything from an irregular paycheck, but it is less painful than trying to find the cash in April to pay the lump sum on an entire years tax obligation.If you make less than $600 from one employer, theyre elend obligated to send you a 1099 at the end of the year, but youre still responsible for the taxes, so be sure to keep your own records.Read the IRS self-employed page and its associated forms carefully. There are a lot of permutations to self-employment, many of which come with special requirements, benefits and unique forms to fill out.For instance, there are special rates for farm work, fishing and work you do for religious organizations.Self-employment taxThe trickiest part is the self-employment tax, which apparently flummoxed even Timothy Geithner, the former CEO of the Federal Reserve Bank of New York and current secretary of the treasury, when he was supposed to be paying it. Fortunately, the folks at TurboTax - the software Geit hner said he was using at the time - have an explanation.Basically, when youre employed, you and your employer split the payments for Social Security and Medicare. When youre self employed, you pay the full cost, which breaks down into 12.4 percent for Social Security and 2.9 percent for Medicare.Simple? No. But you can deduct from your income-tax bill half of what you pay in self-employment tax.And youre supposed to pay it quarterly, using the amount you made during the previous three months to estimate how much youll make during the whole year.Unemployment and job huntingUnemployment benefits are taxable, by the way, but not all of them. The first $2,400 is all yours, though thats new for 2009. For the rest, you should have the unemployment office withhold about 10 percent.Luckily, much of the money youre spending on job searching - for resume rewrites, career coaching and job-search services like Ladders - are deductible. So are transportation costs, parking, tolls and other t ravel expenses directly related to your job search.The bottom line? If you have income from several sources and have become a 1099 after a career as a W-2, and dont have any special background or skills in tax preparation, get as much good advice as you can on deductions and tax-saving strategies. Then get some professional help. In the end it will probably be worth it.Dont forget to keep the receipts and any correspondence that would help prove the connection, in case anyone with an IRS business card wants to chat with you about them.