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.  

1099, Being Freelancer, Freelancers, Future of Work, On Your Own, Self-Employed, Uber

The Five Faces of the On-Demand Economy

Originally published at Smallbizlabs.com

Last week Intuit released The Five Faces of the On-Demand Economy, which covers 5 common profiles of on-demand workers.

This is a follow on report to their On-Demand Workforce report from several weeks ago, which covers the motivations, attitudes and demographics of those working via on-demand economy (ODE) work intermediation platforms such as Uber, Upwork, Fiverr, etc.

The Five Faces and their percentage share of all on-demand economy workers are:

  • The Business Builders – Primarily driven by the desire to be their own boss, they represent 22 percent of on-demand workers.
  • The Career Freelancers – Happily building a career through independent work; 20 percent.
  • The Side Giggers – Seeking financial stability by supplementing existing income; 26 percent.
  • The Passionistas – Looking for the flexibility to do something they love; 14 percent.
  • The Substituters – Replacing a traditional job that is no longer available; 18 percent.

These profiles were developed using cluster analysis to group ODE workers who share similar motivations and attitudes.

As Intuit VP Alex Chriss points out in his article The Future of Work Doesn’t Look Like You Think it Does, these groups are not fixed. Key quote:

The data shows five different faces. But in meeting hundreds of our customers I have come to appreciate that these profiles are fluid and there are often several motivations that influence people’s decisions on how to own their own career.

This is an excellent point. These “faces” – much like the pirate’s code – should be seen “more as guideline than actual rules“.

The reason these faces are important is they show how differently ODE workers view ODE work.

Satisfaction is a good example. As the chart below shows, most Substituters are not sastified with ODE work while the vast majority of Business Builders and Career Freelancers are.

See the report for more differences and details by segment.

Emergent Research worked with Intuit on this study.

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.

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