Taxes For Freelancers: Live Chat With Tax Expert Jonathan Medows
Join us on Friday February 20th at 11:30 a.m. EST as we chat live with tax expert Jonathan Medows about how to tackle filing your taxes when you're self-employed.
Like filing the right health insurance, filing taxes gets a little more complicated when you don’t have an HR department to guide you.
We asked tax experts how to tackle tax deductions from a freelancer’s perspective, to get the most out of your deductions. And we will be hosting a live Q&A to answer more general freelance tax questions.
Join us here on Friday February 20th at 11:30 a.m. EST as we chat with a tax expert Jonathan Medows. He'll be answering your general freelancer and independent worker tax questions.
Get your questions in now using the "make a comment" box below.
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We're gearing up to get started in less than an hour! Start getting in your questions now, freelancers!
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Rachel Gillett, Leadership editorial assistant for Fast Company here! We’ll be getting started in about 10 minutes, so stay tuned for the answers to all your freelancer tax questions. And don’t forget to send in your questions now.
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Just started freelancing last tax year and discovered that from this year on forward (after the one year "grace period" of last year), I have to start filing taxes ahead of time every quarter that I do freelance work. What are the details behind this and how can one get this process started and finished?
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If I have clients that have paid for a service that I provided, but they have not provided a form 1099 to me... then do I report that income? I have heard 2 separate approaches to reporting income. The first method says that you report that income from your clients that provide you with a 1099 at the end of the year. The second method says that anything that is a Deposit Transaction into your business checking account should be reported. The problem with the second method is that not all deposits are income from business services.
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It depends on whether you are self-employed or working for someone. For the self-employed there is the IRA, Roth IRA, SEP IRA, Self-employed 401k plan, SIMPLE IRA, etc. I can think of 10 off of the top of my head. I would consult with a financial advisor regarding this and figure out which is best for you as they all have pros and cons.
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Can you talk about what to watch out for when reporting health insurance taxes for freelancers? As the first full tax season following the Affordable Care Act, it's the first time some of us are dealing with this section in our filing.
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Sure, make sure you report your coverage for the whole year especially if you got a subsidy from the exchange. Also, as a freelancer, if you have a profit you can also claim your health insurance as an adjustment against your gross income. This will help to lower your income tax burden.
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One thing people might overlook when it comes to the sharing economy is the tax bill.
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Here's Another Thing About The Sharing Economy You Might Not Have Thought Of: The Tax Bill
Fast CompanyAirbnb your room? Drive for Lyft? Unfortunately, that extra income isn't free money. -
Do you have any advice for people who are letting out their apartments so they’re not shocked and appalled come tax season?
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Yes, this is potentially taxable. You should keep track of your expenses as it can help you to offset your income. For example, if you rent your apartment you can pro-rate your rent for the days you rented out and claim as an expense. Same for utilities. You can also take off cleaning fees and other costs. Further good news, per the IRS if you rent your home for less than 15 days the rental income is not taxable.
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You can take off the costs of supplies and materials but not your professional time. You should save the receipts paid for these items.
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When you receive the check is when it should be reported.
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If you do not have a connection to the state (nexus is the technical term) and all of the work was performed where you live it is not taxable in the client's state.
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A good question. Ask for referrals from friends is always a good start. Use the internet as well to find people that specialize in self-employed taxes. Make sure the person is licensed and ask for references.
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Do you have any tips for people just starting out as freelancers?
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I would recommend they get in the habit of keeping track of who owes them money, revenue and expenses and making sure they pay estimated taxes. They also need to keep original receipts (or scanned copies) in case of an audit.
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What are some common mistakes you see freelancers make with their taxes?
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Not keeping original receipts. In case of an audit the IRS will not accept bank statements. If people do not have receipts they should do their best to replicate them now. Go back to vendors where they did business for large purchases.
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Another mistake is freelancers not paying estimated taxes or getting professional help to see if structuring their business will help them to save money in taxes. I get plenty of calls from people who try to do taxes themselves and then call me in a panic wanting me to fix things. Unfortunately, it's usually too late. You need to be proactive. -
What's the best way to file/store receipts & how many years are you required to keep them? I find that the ink wears off quickly on receipts but if you scan/save them, does that count as "original receipts"?
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I personally keep them in binders in date order. Scanning should be acceptable unless you have a super cranky and crazy auditor. Keep for 6 years (technically 3 but in case the IRS assets fraud they can go back 6 years).
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A lot of my clients use QuickBooks. Some use Quicken and a few use Xero. Some also use Freshbooks.
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What are some common red flags that often prompt an audit?
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Excessive travel or meals. Very low profit or a loss.
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All right folks, that about wraps things up. Thanks so much for your participation, and thanks to Jonathan for joining us today!
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Thanks everyone for joining. Unfortunately, I need to get back to helping clients. Hopefully, we can do this again.
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That was super helpful, thanks so much for doing this!
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Do you have a website so people can contact you to request your CPA services?