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How to handle tax issues in the US
Thread poster: Tim Kynerd
Tim Kynerd  Identity Verified
United States
Local time: 01:11
Member (2006)
Swedish to English
Jul 17, 2006

Hi everyone,

I'm considering getting into translation as a freelancer. I'm well aware that there is probably somewhat limited demand for my word pair (Swedish-English), but I'm looking at giving it a try anyway.

I lived in Sweden for eleven years and became fluent in the language. While I was there, I did some in-house translation work, as well as technical writing in both Swedish and English, for the IT company I worked for and for another company as well (that paid me as an employee, but by the hour, and the work was occasional).

Now I'm back in the US. I'd like very much to just go ahead and try to win a job or two, but I'm concerned about the tax implications of this. How do freelancers in the US generally handle the tax issues (self-employment tax, Social Security, etc.)?

Any insights and recommendations would be welcome.

Thanks,
Tim


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Stephen Rifkind  Identity Verified
Israel
Local time: 08:11
Member (2004)
French to English
+ ...
Wrong impression Jul 17, 2006

From what I have seen of translators/work ratios, the Scandanavian languages can be very profitable. Non-romance languages face much less competition.

Good luck.

Stephen Rifkind


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xxxLatin_Hellas
United States
Local time: 07:11
Italian to English
+ ...
File 1040 Schedule C, Profit or Loss From Business Jul 17, 2006

Most likely you will start as a sole proprietor, no registration necessary, just declare (you may need to register as a local business in your county and/or town of residence, especially if you plan on advertising locally).
In addition to filing general form 1040 for individuals, you file Schedule C, Profit or Loss from Business (Sole Proprietorship). The code for translator is 541930.
You must keep track of your gross receipts (sales revenues) and your expenses. Download the form to see how you should categorize your expenses.
Assuming you have net profit, you will have to pay at least self-employment tax (actually social security and medicare contributions), form 1040 schedule SE. This comes to approximately 14% of your net profit.
On general form 1040, you can deduct one half of this amount from your overall personal income. Whether or not you pay personal income tax depends on many factors, but if you have a lot of deductions it may come to very little or even zero.
These are just the basics. Please consult a professional tax accountant.

Hopefully you already have a place to live or you live with relatives. Also, don't get sick in this country or the healthcare racket will deplete whatever savings you have been able to muster.

Good luck in your new endeavor.


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craigs
Local time: 01:11
English to Portuguese
+ ...
Thanks, Jul 17, 2006

This info is extremely useful.

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Tim Kynerd  Identity Verified
United States
Local time: 01:11
Member (2006)
Swedish to English
TOPIC STARTER
Thanks! Jul 18, 2006

Many thanks from me too, for the advice and encouragement.

I majored in accounting in the US, so even though that was a long time ago, I don't see bookkeeping as a major challenge for me here (although of course I need to educate myself on the specific requirements when you're running a small business). I have been thinking that I would have to set up an S corporation, an LLC or something similar in order to get into translating. Apparently that isn't necessary, which is great to know.

What I would probably be doing is working a job and doing translation on the side at first; then, as the translation business develops (if it does, that is), weaning myself off the job-job and gradually switching over to translation. I'm well aware that getting established in a new business is very difficult and takes a long time.

Here's another question on this topic. What about liability insurance? Is it needed; how do you assess how much you need; and is it easier to obtain if you have a corporation set up rather than trying to obtain it as an individual?

Thanks,
Tim


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Henry Hinds  Identity Verified
United States
Local time: 23:11
English to Spanish
+ ...
It's no problem Jul 18, 2006

The advice you have already gotten is good, the situation is really simple, you need no corporation, no business name (use your own), it is just self-employment income. I know of no colleague who has any liability insurance or who has ever had any such issues.

Just make sure you pay your taxes, you will likely have to make estimated payments to the IRS (Jan., Apr., June and Sept. 15th) which is as simple as having the money to pay with, and of course do not forget Self-Employment Tax, you are paying your own Social Security as well as Income Tax.


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Susana Galilea  Identity Verified
United States
Local time: 00:11
English to Spanish
+ ...
one more thing... Jul 18, 2006

Tim Kynerd wrote:
and is it easier to obtain if you have a corporation set up rather than trying to obtain it as an individual?


I second the advice given by my colleagues, and would recommend you start thinking of/referring to yourself as self-employed or sole proprietor(ship), since that would be your status tax-wise unless you decide to set up a corporation. As mentioned previously, setting up a corporation is not obligatory in order to offer freelance services, and it has its advantages and disadvantages. If you conduct a search in the Proz.com fora, you will find many discussions on this topic.

Best luck,

Susana

[Edited at 2006-07-18 20:13]


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Tim Kynerd  Identity Verified
United States
Local time: 01:11
Member (2006)
Swedish to English
TOPIC STARTER
Many thanks Jul 21, 2006

Again, thanks for the replies and reassurance.

Best,
Tim


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