Author: Donohoo Accounting Services

5 Things You Need To Know About Filing Taxes As A Freelancer

 

There are many advantages to being a freelance professional. However, filing your taxes can present a major challenge. If you are lucky enough to be a freelancer that works for a single company or client, then filing your taxes might be a breeze. But if you work for numerous companies and individuals throughout the year, then filing your taxes can potentially be a downright nightmare. In that instance, you might consider hiring a professional to do your taxes for you. Here are 5 things you should know about filing your taxes as a freelancer:

 

1. You Must Report All of Your Income (Even If You Don’t Get a 1099)

As a rule, employers are only required to send out 1099-MISC forms if they paid you more than $600. Just because they don’t send you a 1099, however, doesn’t mean they won’t claim those expenses on their taxes. It’s important to keep track of every dime you earn, even if you don’t get a 1099 from someone you worked for. If you don’t have detailed, accurate records, it will probably cost you far less in the long run to just claim a bit more than you actually earned and pay the tax on it than to under-report what you earned and open yourself up to a potential audit.

 

2. You Don’t Have to File If You Made Less Than $400

If you freelance as a “side-gig” and made less than $400, you don’t have to file taxes as being self-employed. In addition, you are allowed to claim certain business expenses for being self-employed. If you subtract your legitimate business expenses from what you earned and come out with less than a $400 net profit, then you also don’t have to file self-employment taxes.

 

3.) You Will Be Required to Pay “Extra” Tax On Your Income

A regular employee working for a regular employer automatically has certain taxes taken out of their paycheck, such as Social Security, Unemployment, and Medicare. In addition, employers also pay half of their employee’s Federal taxes. As a self-employed person, you are both an employee and employer, which means you are responsible for paying both portions of those taxes.

 

4. Home Office Expenses

If you have a dedicated area in your home designated as a home office, you can claim a portion of expenses like rent (or mortgage and property taxes if you are home owner). Cleaning supplies and other miscellaneous items may also be eligible. However, you can only claim these expenses if the area is solely used as an office. Also keep in mind that claiming home office expenses requires filing out a longer form, so if you are a full time freelance professional with a home office, you might consider hiring a tax professional like Donohoo Accounting Services to prepare your taxes for you.09

 

5. Tax Professionals Can Be Especially Helpful to Freelancers

Filing your taxes as a freelancer can be a major strain and take away significant time from doing what you do best. Donohoo Accounting Services can help you get a maximum return with a minimum of stress. Remember, a phone call is free, so consider giving us a call today at 513-528-3982 and let us tell you how we can help you!

Tax Planning for Major Life Transitions

When Benjamin Franklin famously wrote about the certainty of death and taxes, he may not have realized that that these two aspects of American life would later become important elements of financial planning.

Estate and tax planning are not the most enjoyable topics of conversation. However, they are essential in terms of anticipating certain situations that could become costly. Estate planning is related to the efficiently managing money for individuals who are approaching retirement and want a smart way to distribute their assets to loved ones when they pass away. Tax planning involves various methods to reduce tax burdens, particularly in relation to major life events like marriage, divorce, childbirth and going to college.

Many taxpayers are not aware of the potential deductions, deferments and credits that they can take advantage of at certain points in their lives. Here are some examples:

 

Walking Down the Aisle

Most couples believe that getting married means a lower tax liability, and this is true to a certain extent. However, couples who earn incomes that are higher than the national average may end up paying more taxes when their status is “married filing jointly” than other couples who could actually benefit if they file separately. There may be other reasons when filing separately makes sense, such as when one spouse faces tax or child support arrears.

 

Childbirth

The joy of welcoming a baby into the family is shared by the IRS in the form of certain tax deductions and credits. Unfortunately, many taxpayers who are not aware of these benefits forego claiming them.

 

Going to College

Taxpayers who seek higher education are rewarded by the IRS in the form of educational tax credits, as well as tax-free investment and savings accounts. There are certain income limitations that may preclude educational tax credits, and thus it makes sense to conduct tax planning in advance.

 

Dissolution of Marriage

Aside from the obvious change in filing status, getting divorced may bring about certain tax implications related to child support payments and alimony. Individuals who retain child custody could face greater economic burdens even as they receive financial support from their former spouses. For this reason, it is important to investigate potential tax liabilities before the divorce decree is entered.

 

Retirement

When American taxpayers retire, holding on to every income dollar becomes a serious economic priority. Personal savings, retirement accounts and Social Security income can be taxed under certain circumstances. Even moving to a more affordable Latin American or Caribbean nation for retirement does not leave U.S. taxpayers off the hook. The best way to approach retirement taxation is to start planning now.

In the end, tax planning is something that more people should look into before any of the aforementioned events take place. If you would like to learn more about how tax planning can help you save money and take greater advantage of available tax credits, contact the tax professionals at Donohoo Accounting Services in Cincinnati by calling 513-528-3982.

Don’t Pass Up the Earned Income Tax Credit

Anyone who works should see if they qualify for the Earned Income Tax Credit. While the EITC is most often associated with families, it can still work for certain people who are single and don’t have children. The reason it’s worth looking into this credit is it can reduce the taxes you owe. In fact, it will be refunded even if you don’t end up owing any taxes. Given that more than twenty percent of the people who are eligible for this credit fail to claim it (with single workers who have no children being the largest demographic within this group), looking into this topic is something that can pay off for you in a significant way.

 

2016 EITC Income Limits and Credit Amounts

As mentioned above, both single and married taxpayers may qualify for the EITC. The income limits we’re going to cover apply to both earned and adjusted gross income. This credit is available to an individual with no children who makes less than $14,880. The limit goes up to $39,296 for one child, $44,648 for two children and $47,955 for three or more children.

For a married couple filing jointly with no children, the limit is set at $20,430. It goes up to $44,846 for one child, $50,198 for two children and $53,505 for three or more children. Both individual and married filers can only have investment income of up to $3,400.

The amount of the EITC depends on how many children a filer has. This credit starts at $506 for those with no children, then increases to $3,373 for filers with one child. The maximum EITC for two children is $5,572 and $6,269 for those with three or more children.

 

A Quick Note About Delays

Because of the PATH Act, early filers who claim the EITC or Additional Child Tax Credit may experience a slight delay in getting their refund. For a full explanation of this issue, be sure to read our previous post – New Federal Tax Law May Affect Some Refunds Filed In Early 2017.

 

The Simplest Way to Check and Claim the EITC

If you have any questions about your eligibility for this credit or have concerns about making a mistake in claiming it, Donohoo Accounting Services can help. With over two decades of experience, our tax return preparation service will take care of checking your EITC eligibility, calculating the exact credit amount and ensuring all necessary information is filed out to claim it. You can also easily get in touch with our office by calling 513-528-3982.

 

Adjusting Your Withholding If You Receive a Large Refund

Although the experience of getting a large tax refund can be quite nice, many people don’t realize that it’s not optimal. The reason is receiving a large annual refund means someone is actually missing out on a larger total amount of money.

The simple explanation of why that’s the case is if you consistently receive a large refund, it means too much of what you make is being held out of your pay. So even though people often find getting a large refund convenient because they’re able to put it towards a large purchase or paying off a specific debt, it’s important to remember that this money belongs to that individual. By letting the IRS hold it for most of the year, people are turning over the opportunity to earn any interest from it.

 

The Why and How of Adjusting Your Withholding

A simple exercise for seeing the impact that adjusting your withholding can have on your monthly income is to take your most recent tax refund and divide it by twelve. That figure will give you a general estimate of what you could add to your monthly take-home pay. While you do eventually get the total amount back in the form of a refund, receiving it over the course of a year provides the opportunity to invest or at the very least earn a little interest from a savings account.

If you decide that it makes sense for you to adjust your tax withholding, you may have an opportunity if your employer asks about this issue in December or January. But even if they don’t, you can make a change at any time by filling out a new W-4 and then handing it in. The rule of thumb for anyone who consistently receives a big refund is to increase the number of personal allowances. And if you want to make this adjustment because you consistently end up owing taxes, decreasing personal allowances is generally the best way to go.

Since finding the right balance can be a little tricky, you may want to use a withholding calculator to help you out. It’s also worth noting that other times to review your current withholding are when you or your spouse get more than one job. The same is true if you have children, get divorced, buy a home or get married.

Knowing if you need to adjust your withholding is just one example of the type of issue that can directly affect your finances. If you want to be sure that your tax situation is fully optimized, be sure to take a look at our tax return preparation service.