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.

Tax refund
Being Freelancer, Finances and Taxes, On Your Own, Taxes

How to get a Tax Refund

Tax day will soon come and go. Especially for Freelancers and Independent contractors who might be hit with unexpected taxes to pay. Aside from the relief of being done with taxes until next year, one thing many have to look forward to is a tax refund. With the average size of a tax refund at nearly $3,000, it’s not a small amount of money. This is especially true for small business owners. So, wouldn’t it be helpful to learn about how to get a tax refund.

A tax refund can be the biggest payday of the year for a small business. Before we talk about what to do with it, let’s get a few basic questions you might have out of the way:

How Much You Will Get

After preparing your tax return, you will find out if you will get a tax refund and how much. Depending on the form you filed, you can find your refund amount on these lines:

  • Line 76A for Form 1040
  • Line 48A for Form 1040A
  • Line 13A for Form 1040EZ

There are also many tools online that can give you an estimate of how much you will receive. Check out one here.

When You Will Get It

The time it takes for you to receive your tax refund will depend on how you file and when you filed. If you filed via paper, you can expect to wait anywhere from 4 week to 6 weeks. If you filed electronically, your wait is much shorter, anywhere from 24 hours to 3 weeks.

Also, if you filed closer to the deadline, you may have to wait longer as the IRS has a larger batch of returns to process.

Next, comes the big question: when you get your tax return, what do you do with it? It’s important to spend it wisely. If you’re expecting a tax refund this season, here are ways you can spend it:

Add to your emergency fund

Unexpected costs can really sidetrack your business, making it difficult for you to get back on your feet. That’s why it’s crucial for any small business to have an emergency fund. It’s important to be prepared for emergencies or just those rainy days when business isn’t great. Aim to have 3 months of expenses on hand.

Invest your refund

As a small business owner, investing in your retirement might not be a priority. But if you don’t have a retirement fund already set up, consider investing your tax refund in one, such as a Roth IRA. You can choose from a traditional IRA, in which you avoid taxes when you put money in, or a Roth IRA, in which you avoid taxes when you withdraw money in retirement.

Pay off debt

If you or your business still has debt, it’s a great idea to use your tax refund to pay if off. The longer you have debt, the more interest you are accumulating. Start with your highest interest debt first and work your way down the list.

Think outside the box

If you’ve already done all of the above and want to spend your refund more creatively, think outside the box. You may want to invest in new technology to take your business to the next level. Or perhaps there is a course for you or your employees to help better your skills. These are just a couple examples of ways you can invest now in the future of your company.
If you find that your refund is taking longer than expected, don’t panic yet. You should wait at least 3 weeks if you filed electronically or 6 weeks if you filed by paper before contacting the IRS. You can check the status of your refund here. The earlier you file the better as you will see your refund faster.