Being Freelancer, Finances and Taxes, Freelancers, Marketing Yourself, On Your Own, Self-Employed, The American Dream

Splitting The Most Common Business & Personal Expenses

Splitting even the most common business & personal expenses takes time. So, if you’re part of the on-demand society, you’ll have to carefully calculate your business expenses when tax season is just around the corner. You’ll write these off on your Schedule C and it’s crucial that you do it correctly. As an independent contractor, properly calculating your business expenses can greatly reduce your tax liability and save you money.


The difficult part is actually calculating these expenses. When you’re self-employed, many of your business expenses are mixed in with personal expenses so it takes some work on your part to figure out only the business portion. In this guide, we’ll take a look at the three most common business and personal expenses.

Keep in mind – when deciding between business and personal expenses, the IRS requires that business expenses be ‘ordinary and necessary’. Use your judgement when making this decision.

Cell Phones

If you use your cell phone for work purposes, you most likely use it for personal reasons as well. With cell phones, you have a little more room for judgement when deciding on how much is used for business. Typically, you have to calculate how much of your cell phone bill is used for business, including voice and data.

For example, if you make a lot of calls for business purposes and you have to switch your plan for one with more minutes, you can probably write-off the difference between the two plans.

Cars

A car is another common expense that freelancers use for both personal and business reasons. There are two ways to calculate this business expense:

  • Standard mileage rate: The standard mileage rate is the easiest way to calculate your car’s business expense. To use this method, you would calculate your business mileage by the IRS approved rate. The rate for 2015 was 57.5 cents. This rate includes gas, maintenance, lease payments, and insurance.
  • Actual costs method: Alternatively, you can use the actual costs method. In this method, you need to calculate the actual costs of your car expenses for business use. This method is a bit more complicated compared to the standard mileage rate. If you choose to use this method, make sure you keep careful records of all your car expenses.
  • Home Office: If you’re part of the on-demand economy, chances are you work from home at least part of the time and have a home office. You can write-off a portion of this expense. To the IRS, your home office is anywhere in your home your primarily meet with clients, do work, or store business inventory. Using the home office simplified method, you can multiply the square footage of your home office by the IRS approved rate, which is around $5 per square foot. The maximum allowed square footage is 300 square feet.

Calculating your business expenses can be overwhelming but it’s important that you do it carefully and correctly. In the event of an audit, you want to be able to back up why you wrote off the amount you did.

1099, Being Freelancer, Finances and Taxes, Freelancers, On Your Own, Self-Employed, Services, Taxes

3 Tips For Finding Tax Preparation Services

For an average taxpayer, completing taxes every season can be quite a challenge. If you’re part of the on-demand economy, you may also have added concerns, including more forms to file and many different streams of income to keep track of. Taxes for freelancers and independent contractors can be more complicated, especially if this is the first year that you are self-employed. It’s always a good idea to seek tax preparation services when doing your taxes. However, not everyone can afford it. If you are looking for tax services, there are many programs available at discounted prices to help low-income taxpayers. 3 Tips For Finding Tax Preparation Services:

Volunteer Income Tax Assistance

The Volunteer Income Tax Assistance or VITA is a tax preparation service provided by IRS certified professional volunteers. Their services are offered free of charge to those who earn less than $53,000 a year or are disabled, elderly, or not a native English speaker. They offer basic tax services, such as tax preparation and filing. They do not, however, help with Schedule C preparation, which means this service may not be for those in the on-demand society looking for help with self-employed taxes. Volunteers are usually found in local community centers and libraries. To find one near you, click here.

Myfreetaxes.com

Myfreetaxes.com is a free online tax preparation software for households earning $60,000 or less. This software will help you with tax preparation and filing for both your federal and state taxes. They can also help with 1099 taxes. Their software is provided by H&R Block, while the services are funded by Goodwill, the Walmart Foundation, and the United Way.

Additional Resources

Additionally, Myfreetaxes.com offers a tax help hotline, which you can reach by dialing 1-800-MY-TX-HELP. The IRS also has resources for help with your taxes on their website, which you can look into here.

If you are looking for help with issues after you have filed your taxes, you can reach out to the TaxPayers Advocate or Low Income Taxpayer Clinics. This is an independent group within the IRS that can assist with audits, collections issues, and appeals.

Lastly, you may also be able to find local resources within your community to help with your taxes.

Being Freelancer, Finances and Taxes, Income, Self-Employed, Taxes

5 Common Questions About Quarterly Taxes For Independent Contractors

Typically, there are taxes taken out of every paycheck by your employer. However, when you’re an independent contractor, you have to do this yourself. These taxes are called estimated quarterly taxes that you submit to the government. If it’s your first time paying these quarterly taxes, you might have a lot of questions. In this guide, we’ll go over some of the 5 most common questions about quarterly taxes for independent contractors, including when you need to pay and how much.

If I’m an independent contractor, why do I have to pay quarterly taxes? As a salaried employee, your employer takes taxes out of your paycheck for you and sends it to the IRS. When you’re self employed or an independent contractor, you have to do this yourself. Since you don’t have a typical payroll schedule, you would send quarterly payments to the IRS instead. Not all independent contractors have to pay taxes. Generally, if you owe more than $1000 in taxes, you can expect to pay quarterly. That’s equal to about $5000 in income.

How do I know how much taxes to pay? As an independent contractor, you have to calculate how much taxes you have to pay yourself. You can do this using the IRS form 1040-ES or the Estimated Tax for Individuals. This form will help you calculate the estimated taxes you have to pay each quarter based on your past earnings.

When do I have to pay my taxes? Estimated taxes are paid quarterly so keep this schedule in mind:

  • For quarter 1 or January 1 – March 31, pay by April 15th
  • For quarter 2 or April 1 – May 31, pay by June 15th
  • For quarter 3 or June 1 – August 31, pay by September 15th
  • For quarter 4 ot September 1 – December 31, pay by January 15th of the next year.

If the due date falls on a weekend or holiday, you should pay by the next business day.

How do I pay them? By the due date for each quarterly payment, you can pay in one of two ways:

  • You can pay by mail. On your 1040-ES, you will find a voucher for each quarter. While you don’t have to send your actual 1040-ES form, you should send one voucher and a check to the address listed on the form by the due date.
  • You can also pay electronically. You can do so via the IRS Direct Pay.

What happens if I forget to pay? If you fail to pay your taxes, you might be faced with a fine. The penalty will be on the amount you underpaid, about 6 to 8% of that total amount.   Visit the IRS website to learn more about taxes for independent contractors.  

Being Freelancer, Finances and Taxes, Self-Employed, Taxes

Self Employed Calculator

Dear Freelancers: Use this Self-Employment calculator to estimate your self-employment taxes. Normally these taxes are withheld by your employer. However, if you are self-employed, operate a farm or are a church employee you may owe self-employment taxes. Please note that the self-employment tax is 12.4% for the FICA portion and 2.9% for Medicare. It is actually kind of important that you use this calculator several times a year — maybe ever quarter – to stay on top of how much you will owe Uncle Sam and Aunt Samantha.

[iframe src=”http://www.nase.org/business-help/calculators/tax/self-employment-tax-calculator” width=”100%” height=”500″]

paypal 1099
1099, Being Freelancer, Finances and Taxes, Self-Employed, Taxes

Paypal and 1099s

Over the years, Paypal has become more and more popular as a payment processor between independent contractors and clients. As we approach tax season, many freelancers are faced with a new question: how do you handle income from Paypal? How do you handle 1099s if most of your transactions conducted via Paypal

Many independent contractors this year will receive a Paypal 1099. If it’s your first time dealing with this type of 1099, you’re in the right place. Here are 4 things you need to know about Paypal 1099s.

There are many types of 1099s

There are many different types of 1099s. All 1099s serve the same purpose of reporting income and earnings. A 1099-MISC is the most common for freelance income. You might also come across a 1099-INT for your bank interest. For income processed through Paypal, you will receive a 1099-K. A 1099-K is for income processed through “payment card and third party network transactions”.

You can learn more about the 1099-K on the IRS website here. You can also view a sample of the form here.

The Paypal 1099 is new

The Paypal 1099 or the 1099-K is a fairly new document. In the past, income from payment processors, such as Paypal, wasn’t being captured. However, the number of paypal users grew increasingly over the years, especially those who used the service to transfer business income. As this presented a problem in itself, the IRS set up the 1099-K specifically to capture this income.

You may not meet the requirements for a Paypal 1099

Even if you did receive income through Paypal, you might not receive a 1099-K. Paypal is only required to send a 1099 to users who earned more than $20,000 in income and had more than 200 transactions. Both requirements have to be met in order for you to receive a 1099-k.

If you don’t receive a 1099-K but did receive income through Paypal, you should still report these earnings on your Schedule C.

Don’t forget about Paypal commission

If you do receive a 1099-k, one thing you should take into account are Paypal commissions. The total listed on your 1099 may include commission. If so, Paypal should tell you specifically how much and give you a breakdown of the total. On your Schedule C, you should report this commission as both income and an expense. This would result in a net of $0 and therefore, you wouldn’t have to pay taxes on this commission.
If you have questions specifically regarding your Paypal 1099, you can reach out to their customer service directly for help.