From 89.3KPCC, Brian Watt discusses the challenges and opportunities freelancers face filing their taxes. He shares information from Tristan Zier, founder of Zen99 which provides tax and insurance support for independent contractors. Brian writes:
“Here are seven don’t – or, deadly sins, for freelances at tax time:
- Not knowing what they owe. Zier says there are 20 different 1099 forms that get sent out to workers to track freelance gigs. One of them is the 1099-K, which only has to be sent to you by a company in paper form if you make over $20,000. “People think, ‘Great, no paper form, no taxes on that,” says Zier. “Big mistake there. You still have to self-report the income.”
- Not knowing WHEN they owe. For freelancers who owe more than $1,000 in taxes for a year, tax time comes more often than just April 15. They have to pay taxes quarterly. But then it’s not coming out of paychecks like it does for permanent employees.
- Not tracking and writing off the right types of business expenses. Zier says many freelancers fail to realize they can write off part of their cell phone bill as a business expense. Expenses vary by the type of work. “A rideshare driver’s biggest expense will be related to their car, while a web developer’s biggest expense might be their home office,” Zier says. “Figuring out what expenses are important to your type of work is important is maximizing your tax savings.”
- Writing off personal expenses. This goes back to that cell phone. If you use the same phone for personal and business purposes, don’t be tempted to write the whole bill off. Estimate the amount you use it for your work. The same goes for your vehicle. Don’t go trying to write off miles driven to the beach.
- The Double No-No: counting expenses twice. Speaking of vehicles, Zier says most people use the Standard Mileage Rate ($0.56/mile for 2014), which factors in gas, repairs and maintenance and other costs like insurance and depreciation. But if you use this rate, you can’t also expense your gas receipts and repair bills.
- Employee AND employer. At lifeofthefreelancer.com, financial consultant Brendon Reimer reminds freelancers they play both roles. For regular employees, Federal, State, and payroll taxes are withheld from a paycheck, and distributed on the employee’s behalf. It’s how Social Security and Medicare are funded. The IRS mandates that the employer must pay half of every employee’s payroll tax, and the employee is responsible for the other half. Independent contractors have to handle both halves. “The IRS does give you a small benefit by letting you deduct the half that you pay yourself as a business expense,” Reimer writes. Zier said the freelancer’s sin here is believing he or she pays more taxes than the regular working stiff.
- Not keeping adequate records. The IRS requires you to keep proof of all business receipts, mileage, etc. If you can’t show these, the IRS could refute the expense and force you to pay back taxes. Zier says the good news is there are other ways to prove expenses if you’ve lost the receipt. A bank or credit card statement with the date and location might do the trick. “The IRS is surprisingly accommodating if you are doing your best,” Zier says. “If you’re being a headache, they’re going to be a headache as well.” …”
Read the full story at Freelancer? Avoid these ‘7 deadly sins’ at tax time.