Check with your state and local authorities to see the requirements to form a business, as well as what type of license, permit, etc. you need to operate there. Each entity type should apply to get a Employer Identification Number (EIN) from the IRS using Form SS-4. You should also check with your state about getting a state tax ID.

Sole Proprietor

In most cases, new businesses operate as a sole proprietorship. When tax time rolls around, if you are organized as a sole proprietor, you will need to complete Schedule C* of the Form 1040 to account for your business profit or loss. Note that if you have $5,000 or less in expenses you may be able to file the Schedule C-EZ instead. The profit or loss from the Schedule C is then transferred to page 1 of the Form 1040, where it is included with your taxable income.

*If your small business income is from rents or royalties, you will use Schedule E. If it’s farming income, you will use Schedule F.

It’s important to keep accurate records of your business income and expenses, as you will be required to report these things on the Schedule C. For more information on starting a business and filing with a Schedule C, see Publication 334, Tax Guide for Small Business. This includes information on EINs, record-keeping, tax year, accounting method, and more.

Partnership, S Corporation, and C Corporation

If you are organized as a Partnership, you file the strictly informational Form 1065. A Schedule K-1 is produced for each partner and then you use that K-1 to determine the income that is reported on your personal Form 1040.

If you are organized as a C Corporation or S Corporation, you should file a Form 1120 or Form 1120S, respectively.

To understand more, be sure to check out these instructions from the IRS: IRS Forms for Partnerships and IRS Forms for Corporations.

Limited Liability Company (LLC)

Some business owners choose to organize under the popular LLC structure. LLCs have a lot of flexibility when it comes to filing taxes. They can be taxed like a sole proprietor (if they have only one member), partnership, or even like a corporation (C or S). If you are the only member of your LLC, then you will be automatically treated like a sole proprietor. Most multiple member LLCs will be treated like a partnership. If you decide you would like to be taxed in a different manner than these defaults, then you need to file Form 8832 to elect another classification. Note that if you intend to be classified as an S Corporation, you need to complete Form 2553. Once you determine your business structure for tax purposes, just use the recommended forms above to file. To understand more, be sure to check out these instructions from the IRS: IRS Forms for LLCs.

When These Forms are Due

Form 1065 and Form 1040 Schedule C must be filed by April, 15th. Forms 1120, 1120A, and 1120S are due a month earlier, by the March 15th deadline.

Here are some of the more important tax tips freelancers, bloggers who earn income, and anyone else earning money that’s not reported on a W-2 should consider.

You are required to report all your income. While you may receive 1099s to help you track the money you earn throughout the year, companies are not always required to distribute these forms. The IRS wants you to report a gross income that is equal to or higher than the total amount of income reported on 1099s sent to you. Therefore, it is helpful to track every dollar you are paid. Any income form that is sent to you must be included when you file your taxes, and that is just the minimum.

Whether you use Quicken, a spreadsheet in Excel, or an envelope containing check stubs and deposit receipts, make sure you know the source and amount of all income that you earn. This can be difficult when you are dealing with multiple modes of payment, including paper checks, electronic direct deposits, PayPal, and cash. Tracking your income and your important expenses and having the details ready when you sit down to complete your tax return will make your job so much easier.

Yes, tracking your expenses in addition to your income is just as important. As a freelancer, you are a  self-employed individual and entitled to take certain deductions for business expenses. My goal is to maximize these expenses, so I am careful to track everything in software, collect physical receipts in an envelope, and save emailed receipts in a printable format (like PDF) on my computer in an area designated for the current year’s taxes.

With your expenses fully enumerated and categorized, you will be well prepared for deducting as much as legally allowed on your Schedule C — the tax form where you describe your self-employment income and expenses. Here are a few examples: If you advertise your services, you can deduct the fees you pay. You can deduct the expenses paid to any subcontractors who work with you as long as they provide you an invoice for their services. You can deduct most costs of doing business, including business banking fees, tax software purchases and fees associated with accepting credit card payments.

About once every week or two, I drive to the studio where I record the Consumerism Commentary Podcast with my friend and subcontractor, Tom. That mileage is deductible on Schedule C, as well, at a rate per mile that is set by the IRS every year. To stick by the rules, log the miles you drive for business if you don’t have a vehicle that is used only for that business. You can do this with simple pen and pad, or, if you’ve got an iPhone, apps like Tap2Track help you automatically keep track on the go.

Self-employment also qualifies you for a number of options for saving for retirement. A Simplified Employee Pension (SEP) plan is a tax-deductible IRA available to anyone who works for himself or herself. The annual investment maximum for this IRA is higher than the maximum for a traditional or Roth IRA, so you have a chance to reduce your taxable self-employment income by the amount you invest in your SEP IRA. This is a deduction worth considering.

Here is a selection of the the possibilities for reducing the taxes you owe on your self-employment income, taken right from Schedule C. Any business expenses in these categories will help you reduce the amount of tax you owe.

• Advertising
• Subcontractors
• Depreciation of equipment (such as computers used for your

  business)

• Interest you pay on business loans
• Legal and professional services
• Office expenses
• Supplies
• Travel, meals, and entertainment
• Utilities
• Other business expenses

As a blogger, if you earn enough money from your writing that your endeavor is more than a hobby, these are some specific expenses you can likely deduct:

• Web hosting and management fees
• Photography costs if your website includes self-created images or

  stock photography fees

• Software necessary for producing your content
• PayPal fees
• Books, e-books, seminars, and subscriptions that help you improve

  your business

• If your blog is focused on a certain topic, any expenses related to

  research pertaining to that topic

• Telephone or Skype expenses if used for your website

The key for freelancers and bloggers who earn money is as I mentioned at the start of this article: get organized and stay organized. If you remain reasonable in your assumptions and deductions it’s unlikely you will be audited, but it doesn’t hurt to have your supporting documentation ready to go at a moment’s notice. Plus, when you sit down to complete your taxes, having your materials available will reduce your stress. According to doctors, less stress will extend your life, which will allow you to earn more money and, as a result, pay more taxes.