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, Freelancers, Income, Taxes

Tax Tips for Uber and Lyft Drivers

 

Delivery drivers make up a large percentage of independent contractors in the United States. From food to online orders, these workers transport goods from client to customer. Many delivery drivers work on a freelance basis, picking up gigs when available, either to supplement or replace their full-time income. In both cases, it’s important to report this income correctly for tax purposes. So here are some simple tax tips for Uber and Lyft drivers.

Taxes for those who are independent contractors, freelancers, or self-employed are handled differently than those employed full-time and there can be certain nuances depending on what you do. If you are a delivery driver, take a look at this 3-step guide to doing your taxes:

Step 1: Understanding your tax documents

As an independent contractor, your clients will typically send you a 1099 (as opposed to a W-2, which you may be accustomed too). 1099s come in many forms and the most typical is the 1099-MISC. For clients in which you earned more than $600 in the year, you should receive a 1099 by January 31st. They will also send a copy to the IRS. If they fail to send you a 1099, you must still report this income. You must also still report income from clients you earned less than $600 from. This income can be reported in your Schedule C.

Step 2: Tracking write-offs and expenses

It’s important to track and correctly list all business expenses. For independent contractors, this reduces your taxable income and can save you a significant amount of money.

For delivery drivers, these are the most common write-offs:

  • Transportation:
    • Car: If you use your car as your main form of transportation, you can write off this expense the following ways:
      • Standard mileage rate: Using the standard mileage rate, you can multiply your business mileage by the IRS approved rate. This rate in 2014 was $.56. This includes insurance, depreciation, maintenance and repairs, and gas.
      • Actual costs method: You could also calculate the actual costs to you. This tends to be more complicated, as you have to figure out the percentage of each cost that relates to business.
    • Bikes: Many delivery drivers use bikes as their main form of transportation. You can write off the depreciated value (and do this year over year) or write off the entire cost of the bike in one year. You can also write-off maintenance and repair expenses.
  • Cell Phone: Cell phone expenses can be written off. If your cell phone is used for both business and personal purposes, you have to calculate the percentage of your bill you use for business purposes and list that amount only.

You can use your own discretion when deciding what business expenses to list. Keep in mind that the IRS requires expenses to be ‘ordinary and necessary’ to your business.

Step 3: Complete and send

After you have received your 1099s and completed your appropriate documents, it’s time to send it off. Typically independent contractors will file a 1040 and a Schedule C (or Schedule C-EZ). For more information about taxes for the self-employed, visit the IRS website. You should file your taxes, either electronically or postmarked, by April 15th.

1099, Being Freelancer, Companies, Finding Jobs, Freelancers, Future of Work, Income, Industry Research, Insurance, News, On Your Own, People, Self-Employed, Uber, Your rights: Presidential Election, Laws, etc.

Portable Benefits for the On-Demand Worker

The emergence of the gig economy has opened an important debate about having portable health and other benefits for the On-Demand Worker. There has been a number of calls for a new category for those who occupy the gray area between employees and independent contractors. Freelancers often work through a middle man or a marketplace (think Upwork.com or 99Designs) or an intermediary, typically an “app,” that customers use to identify themselves as needing a service—for example, a car ride, landscaping service, etc. This enables the employer to maintain some sort of arms-length distance from the worker. (We all know this is often broken, however). How can you work for someone without them giving you some sort of direction?

It’s increasing, but today it appears that at least about 600,000 or .4% of the US Workforce work with an online intermediator. The Hamilton Project at Brookings (I once interned there while I was a student across the street at Johns Hopkin’s University’s SAIS program across the street), recently hosted a gig economy event where Brookings made a proposal for  Modernizing Labor Laws in the Online Gig Economy. The talk focused on health and other benefits, and how to ‘force these new forms of work (from Uber, etc.) into a traditional employment relationship could be an existential threat to the emergence of online-intermediated work, with adverse consequences for workers, consumers, businesses, and the economy. “One of their One of the key benefits they proposed was portable benefits, which is a fascinating idea because (Independent contractors tend to have multiple gigs at one time). Their definition:

As we are defining it, the online gig economy involves the use of an Internet-based app to match customers to workers who perform discrete personal tasks, such as driving a passenger from point A to point B, or delivering a meal to a customer’s house. Note that this definition excludes intermediaries that facilitate the sale of goods and impersonal services to customers, such as TeacherPayTeachers.com, a Web site where teachers sell lesson plans and other non-personal services to other teachers, and Etsy.com, a Web site where individuals sell handmade or vintage goods. It also excludes Airbnb, a Web site where people can rent apartments, houses, and other accommodations.

The authors of the Hamilton Report highlight that ‘because it is conceptually impossible to attribute their (workers’s) work hours to any single intermediary.” Today, these independent workers do not qualify for hours-based benefits, including overtime or minimum wage requirements. These independent contractors rarely, if ever, qualify for unemployment insurance benefits. If intermediaries could pool independent workers, however, for purposes of purchasing and providing insurance and other benefits at lower cost and higher quality without the risk that their relationship will be transformed into an employment relationship, then they might be open to pooling their resources and having portable benefits for the contingent workforce.

The Ubers of the worls could then save on the costs if they have to eventually hire these workers full-time and on legal fees (although Uber has changed their driver terms of service agreement that bars drivers from participating in class action lawsuits against the company and instead requires them to enter into arbitration in the case of disputes).

As Steve King points out in his short analysis of this proposal, this new portable benefits law probably should include gig economy workers who work in the B2B sector, or sell goods, or rent real estate, but they do. But even though they are excluded from their analysis, they would likely be included in any portable benefit laws. Portable benefits seems to be a hot topic. Next week the Aspen Institute is holding a workshop on portable benefits.

Protection of the 1099 is important. I have heard of companies (the employer and the intermediary) using algorithmic scheduling to ensure their works never go beyond 29 hours of work a week, which ensures they don’t have to pay them health benefits or provide the other goodies full-time employees receive. It’s important to figure out how to address this barrier to benefits.  Ouch! Talk about Big Data hurting the worker!

Another reason to address this is that Brad Smith, the CEO of Intuit and one of the best leaders I have ever worked for, has indicated that his company’s data data shows that 40% of their self-employed customers also have income from a W2 job. (I know several people who wear these two hats). So this problem of multiple employers with different tax and benefit regimes started way before the Ubers, Lyfts, Instacarts came on the scene.

Portable Benefits basically means a person should be able to use the same benefits when they work for different on-demand companies. The Hamilton proposal is a start – it has accelerated the discussion about a new class of employees or at least the call for examining how workers are currently classified. Their proposal really doesn’t focus on online or offline, but instead stresses that workers should be protected and receive benefits. As the chart below indicates, this will continue to become an increasingly important issue to address in our On-Demand Society.

You can read The Hamilton Report here

Collecting Money
Being Freelancer, Finances and Taxes, Freelancers, Income, Self-Employed

Freelance Jobs: Collecting the dough!

Not getting paid, not collecting the dough, is every freelancer’s nightmare. To ensure this doesn’t happen, there are some specific tactics you need to do before agreeing to take on work for client. These include:

  • Assess the credit worthiness of your clients: Determine up front how risky it is to work for a certain client. It’s amazing how many people agree to work on Upwork.com and other freelance sites without really researching the company (at least, check out their website).
  • Sign a contract: You need to protect yourself so make sure you get an agreement in writing (yes, have someone provide a signature (electronic or otherwise) before taking on work. Freelance Union has a simple contract creator tool.
  • Ask for 50% upfront: For project based work, don’t be afraid to ask for some money upfront before you start working for your employer.
  • Make the net payment 30 Days. If they want to negotiate, maybe go to 60 days, but I would stick to 30 days and make sure to add a penalty (X%) for each day they don’t pay.
  • Email your invoices: Make sure to email your invoices on time. With some accounting applications, you can automatically send a second invoice if a client does not pay.

If you don’t get paid,

  • Ask your attorney (friend : ) to write a letter, but don’t threaten your client during the first communication. Try to stay away debt collectors or small claims court. Collection agencies generally take 50% of what they collect. Yikes!
  • Hire a collection agency to make calls and send letters. Collection agencies will generally pay you 50% of what they collect. Click here to find more info on them or for a list of different companies that can help you.
  • Determine if Small Claims Court makes sense. It might cost your more in time and effort than it is worth.
  • Offer a discounted payment as a one-time-only offer. Write it, put a strict deadline on it, and be extra clear with them that this offer is only happening once. If they accept, be sure to formalize the deal with a legal agreement called a mutual release and settlement.
  • Turn unpaid invoices or failed payments. into a customer service opportunity. Sometimes your employer or clients will not pay a bill because they are overworked or lazy. So your job is to make sure you make it as easy as possible for them to pay you.

To be honest, I can see this becoming a bigger issue for freelancer in the coming years. It’s too expensive to depend on a bookkeeper to handle a lot of the invoicing and follow up with companies. So in the meantime, make sure you set aside a few hours a week to follow up with your clients on payments, etc. It also can’t hurt to have accounting software or a good spreadsheet to track these sorts of transactions.

For larger clients, you will have to submit invoices and probably wait 30+ days. For smaller clients, you can ask to be paid via Paypal or use Square or Flint Mobile, which I particularly like because you can scan a credit card without using a Square-Swipish-ish toggle.

sharing economy
Being Freelancer, Flexibility: Hours, Family, etc., Freelancers, Income, The American Dream, Uber

Sharing Economy is not part of the American Dream

Guest Post by Steven Hill, a senior fellow with the New America Foundation, is the author of “Raw Deal: How the Uber Economy and Runaway Capitalism Are Screwing American Workers.”  This first appeared on Salon.com and addresses some key issues around the Sharing Economy.

A significant factor in the decline of the quality of jobs in the United States has been employers’ increasing reliance on “non-regular” employees — a growing army of freelancers, temps, contractors, part-timers, day laborers, micro-entrepreneurs, gig-preneurs, solo-preneurs, contingent labor, perma-lancers and perma-temps. It’s practically a new taxonomy for a workforce that has become segmented into a dizzying assortment of labor categories. Even many full-time, professional jobs and occupations are experiencing this precarious shift.

This practice has given rise to the term “1099 economy,” since these employees don’t file W-2 income tax forms like any regular, permanent employee; instead, they file the 1099-MISC form for an IRS classification known as “independent contractor.” The advantage for a business of using 1099 workers over W-2 wage-earners is obvious: an employer usually can lower its labor costs dramatically, often by 30 percent or more, since it is not responsible for a 1099 worker’s health benefits, retirement, unemployment or injured workers compensation, lunch breaks, overtime, disability, paid sick, holiday or vacation leave and more. In addition, contract workers are paid only for the specific number of hours they spend providing labor, which increasingly is being reduced to shorter and shorter “micro-gigs.”

In a sense, employers and employees used to be married to each other, and there was a sense of commitment and a joined destiny. Now, employers just want a bunch of one-night stands with their employees, a promiscuousness that promises to be not only fleeting but destabilizing to the broader macroeconomy. Set to replace the crumbling New Deal society is a darker world in which wealthy and powerful economic elite are collaborating with their political cronies to erect the policy edifice that allows them to mold their proprietary workforce into one composed of a disjointed collection of 1099 employees. Employers have called off the marriage with their employees, preferring a series of on-again, off-again affairs.

This is a direct threat to the nation’s future, as well as to what has been lionized around the world as the “American Dream.”

I’ve experienced the vagaries of this new working life myself. After working for many years in the Washington, D.C.–based think-tank world, the program that I directed lost most of its funding and was shut down shortly thereafter. All my employees, myself included, were laid off. I was promoting my latest book that had been published a few months before, so I surfed that wave for many more months. For a while, all seemed normal and natural, but without realizing it I had stepped off the safe and secure boat of having what is known as a “good job,” with a steady paycheck, secure employment and a comprehensive safety net, into the cold, deep waters of being a freelance journalist.

Suddenly I was responsible for paying for my own health care, arranging for my own IRAs and saving for my own retirement. I also had to pay the employer’s half of the Social Security payroll tax, as well as Medicare — nearly an extra 8 percent deducted from my income. The costs for my health-care premiums zoomed out of sight, since I was no longer part of a large health-care pool that could negotiate favorable rates.

But that’s not all. Suddenly not only was the pay per article or lecture not particularly lucrative, but I didn’t get paid for those many hours in which I had to query the editors for the next article or lecture, or conduct research and interviews. It was as if I had become an assembly line worker who was paid on a per-piece rate; the “extraneous” parts of my working day — rest and bathroom breaks, staff meetings or time with co-workers at the water cooler, usually paid time in a “good” job — had been stripped to the bone. Not to mention I no longer had paid vacations, sick days, holidays, nor could I benefit from unemployment or injured workers compensation. Instead of receiving a paycheck from a single employer, now I had to track my many and varied sources of income, making sure that unscrupulous editors didn’t stiff me.

In short, I had to juggle, juggle, juggle, while simultaneously running uphill — my life had been upended in ways that I had never anticipated. And I began discovering that I was not alone. Many other friends and colleagues — including Pulitzer Prize-winning journalists, professionals and intellectuals, as well as many friends in pink-, white- and blue-collar jobs — also had become 1099 workers, tumbleweeds adrift in the labor market. They found themselves increasingly faced with similar challenges, each in his or her own profession, industry or trade. In short, we had entered the world of what is known as “precarious” work, most of us wholly unprepared.

Not to worry. The sharing economy visionaries — who like Dr. Pangloss in Voltaire’s Candide always see “the best of all possible worlds” — had a plan in place for us. We could “monetize” our assets — rent out our house, our car, our labor, our driveway, our spare drill and other personal possessions — using any number of brokerage websites and mobile apps like TaskRabbit, Airbnb, SnapGoods, the ride-sharing companies Uber and Lyft, and more.

This is the new economy: contracted, freelanced, “shared,” automated, Uber-ized, “1099-ed.” In essence, the purveyors of the new economy are forging an economic system in which those with money will be able to use faceless, anonymous interactions via brokerage websites and mobile apps to hire those without money by forcing an online bidding war to see who will charge the least for their labor, or to rent out their home, their car, or other personal property.

Websites like Uber, Elance-Upwork, TaskRabbit, Airbnb and others are taking the Amazon/eBay model the next logical step. They benefit from an aura that seems to combine convenience with a patina of revolution; convenience as revolution. The idea of a “sharing” economy sounds so groovy — environmentally correct, politically neutral, anti-consumerist and all of it wrapped in the warm, fuzzy vocabulary of “sharing.” The vision has a utopian spin that is incredibly seductive in a world where both government and big business have let us down by leading us into the biggest economic crash since the Great Depression.

But the “sharing” economy’s app- and Web-based technologies have made it so incredibly easy to hire freelancers, temps, contractors and part-timers, why won’t every employer eventually lay off all its regular, W-2 employees and hire 1099 workers? Any business owner would be foolish not to, as he or she watches their competitors shave their labor costs by 30 percent (by escaping having to pay for an employee’s safety net and other benefits).

Outsourcing to these 1099 workers has become the preferred method for America’s business leaders to cut costs and maximize profits. One new economy booster clarified employers’ new strategy: “Companies today want a workforce they can switch on and off as needed” — like one can turn off a faucet or a radio.

Indeed, the so-called “new” economy looks an awful lot like the old, pre-New Deal economy – with “jobs” amounting to a series of low-paid micro-gigs and piece work, offering little empowerment for average workers, families or communities. We’re losing decades of progress, apparently for no other reason than because these on-demand companies conduct their business over the Internet and apps, somehow that makes them “special.” Technology has been granted a privileged and indulged place where the usual rules, laws and policies often are not applied.

If that practice becomes too widespread, you can say goodbye to the good jobs that have supported American families, goodbye to the middle class and say adios to the way of life that made the United States the leading power of the world.