Double Dipping

Today TaxMama hears from Danny in New York City, who tells us, “In 2005 I was working for a consulting firm. as an employee doing doo-dad things for $20 an hour, part-time. In September, I became a consultant for them and worked full-time at a client company. When that happened (September) I continued to doo-dad jobs for the consulting firm. from home and was asked to just bill them $20 an hour for my work.

Now, I have 2 issues:
1. I finally sent them 1 bill last week for 6 months of work (so 4 months are from 2005, 2 months from 2006). I haven’t gotten paid yet. But when I do, will it be on my 2005 taxes, or 2006?
2. Since I’m a consultant for them (they pay my paycheck for working for the other company), can I also claim I do freelance work for them also (totally different work)? Can I start adding up deductions for this freelance work I do?”

Hi Danny,

If you’re new to taxes – and you’ve got freelance income, don’t prepare this tax return yourself. At least for the first year, have a tax professional help you get everything right.

When do you report the income for last year that you just invoiced? You report the income when you receive it – which, hopefully, will be in 2006.

But, remember to invoice them every month – not every six months. It looks like a lower fee to them. You’ll get paid sooner…and if they ever have financial problems and can’t pay, you won’t be out as much.

And can you be both an employee and a freelancer for the same company?
Yes. Absolutely. You’re on payroll doing your job. But you have a business doing those freelance things from home on your own time.

So, definitely start recording all your expenses related to being in business for yourself. Of course, you know where you can get a great book to help you, right?

Remember, you’ll find answers to questions about freelancing and all kinds of tax issues, free. Where? Where else? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d get special tips that aren’t published anywhere else. Please click on the subscribe link and join us.]

File Download (1:59 min / 0.5 MB)

Leave a Reply