Freelancing has become an attractive business model that offers flexibility and autonomy to employees. However, freelancers have different tax liabilities than those working in a traditional job. In this article, we will examine the tax liabilities and billing processes that apply to freelancers.
Tax Responsibilities of Freelancers
Freelancers must pay income tax on all income they earn. The income tax rate varies depending on the amount of income earned and is declared annually.
VAT stands for value added tax. Freelancers who exceed a certain turnover limit must be subject to VAT and must show VAT on their invoices. This may result in an additional tax liability for the services they provide to their clients.
Clients are required to withhold taxes from payments made to freelancers. Withholding taxes are considered a prepayment of income tax and are deducted directly from payments.
This helps freelancers meet their tax obligations and reduces the amount they have to calculate when filing taxes.
Freelancers should regularly monitor their income and tax liabilities. There are various deductions and exemptions, but this varies by industry and job. For this reason, freelancers may want to consider getting support from tax advisors.
How is Taxation Done in Freelance Work?
There are two main types of taxation for freelance work, and both involve different taxation methods. Freelance income is the most common taxation method for freelancers.
Freelancers declare their income as freelance income. In this case, the person reports the income earned directly on their income tax return and is taxed.
Freelancers may start to engage in commercial activities when they reach a certain size or want to expand their business. In this case, the taxation method changes because the person earns commercial income.
Taxation on business income is a more complex process involving different elements of income and expenses. Those who earn business income must pay more attention to detail in taxation and accounting matters.
Freelancers must be careful during the taxation process and act in accordance with tax laws. Otherwise, if any irregularities are detected during the investigations, they may face serious payments and sanctions.
They should track their income and expenses regularly, prepare tax returns, and make payments on time. In this way, freelancers can fulfill their tax responsibilities and be financially secure.
Invoicing Process While Working Freelance
Freelancers are required to invoice their clients for the services they provide. The invoice process includes the following steps:
- Billing Information:The invoice should include basic information such as the start date, due date, and invoice number. This information ensures the validity of the invoice and makes it easy to track.
- Customer Information:The invoice must include customer information such as the customer’s name, address and tax number.
- Service Details:The invoice must include a description of the services provided or products sold.
- Quantity and Pricing:The invoice must state the quantity and unit price of the service or product provided. This ensures that the amount the customer must pay is calculated correctly.
- Taxation Information:The invoice must include the VAT rate and the calculated VAT amount. In addition, tax-related information such as the tax identification number or tax number must be included on the invoice.
- Total Amount:The total amount of all services or products must be clearly stated on the invoice.
Freelancers can easily create invoices using accounting software or online invoice generators. Proper invoicing helps freelancers manage their financial records and meet their tax obligations.
Social Media Earnings Exemption
Starting from 2023, a tax exemption of up to 3 million TL has been introduced for earnings obtained through social media platforms. This exemption covers social media influencers, YouTubers, Twitch streamers and people who earn income by producing content on other platforms.
There are various conditions to benefit from the exemption. This exemption is also valid for 2024. In order to benefit from the exemption, you must first find out whether you meet the conditions. You can get help from a financial advisor for this.
Then, you should report this to the tax office and open an account where your earnings will be taxed according to the notification you receive.
All of your social media earnings should be sent to this account. Freelancers who benefit from this exception cannot issue invoices, but they can document their income by issuing a contract. If the earnings exceed 3 million TL, this exception does not apply to the exceeding amount and is taxed differently.