Taxes

Adjusted gross income (AGI) refers to your gross income, minus what the IRS calls “adjustments to income.” These include things like student loan interest and contributions to a retirement account.

A certified public accountant (CPA) is a licensed professional who provides financial advice for individuals and businesses. CPAs must meet certain work, education, and testing requirements.

Estimated tax is a quarterly payment generally required of U.S. taxpayers who earn income that isn’t subject to withholding. This includes income from self-employment, capital gains, and more.

Form 1040-ES is a form provided by the IRS to help freelancers, independent contractors, and others calculate their estimated taxes. Such individuals are required to pay quarterly taxes.

Form 1099-NEC is an official IRS form that businesses use to report money that they paid to nonemployees. Freelancers should generally receive this from their U.S.-based clients each year.

Form I-9 (aka Employment eligibility verification) is a form mandated by the Immigration Reform and Control Act of 1986. All U.S. employers must fill this out to verify an employee’s identity and authorization to work.

Gross profit is the total amount of money you make, including both earned and unearned income. It refers to all of your earnings before taxes and deductions are taken out.

A home office deduction applies to the part of your house that you use exclusively for business purposes. The IRS provides specific instructions for who can take this deduction and how.

In freelancing, income refers to the amount of money you receive for your products or services. Your gross income could also include any wages or salary you earn in addition to your freelancing total.

Itemized deductions are an alternative to standard deductions i.e., when filing your taxes, you may choose to itemize your expenses in order to lower your taxable income even further.

Net earnings (aka net income, net profit, or bottom line) refers to the total amount of money you made after subtracting any business costs, income taxes, interest, and other deductions.

Schedule C is part of Form 1040, which is used to report how much money you earned or lost over the last year. Sole proprietors and single-member LLCs are generally required to fill this out.

Self-employment tax (SE tax) is tax that most self-employed individuals must pay in addition to income tax. It encompasses Social Security and Medicare taxes.

A sole proprietor is someone who single-handedly runs his or her own unincorporated business. A sole proprietorship is the simplest type of business structure.

Tax deductions are expenses that can lower your taxable income. For freelancers, they include things like business startup costs, health insurance premiums, home office costs, and others.

Taxable income refers to the portion of your gross income (which includes wages, salary, rent, and other earnings) that is subject to tax. It is essentially your AGI minus standard or itemized deductions.