Taxes Made Simple

Keith (freelance web designer) asks:

I’m a web designer who does some freelance work on the side. At one point this year, I received a job for $2,000, but was too busy to complete it personally. I ended up farming it out and paying another designer $1,500 to do the job. What amount do I have to pay taxes on? The $2,000 or the $500 I actually made?

Answer:

Keith, all $2,000 will be included in your gross income on your Schedule C. However, you will also get to include a deduction for the $1,500 you paid the other designer. As such, you’ll only end up paying tax on the $500 net income from the project. 

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