Tag Archives: freelance taxes

Ask A CPA

Joe-Wallace-Vinyl-Collector-and-authorby Joe Wallace

I filed a tax extension in April to give myself more time to ignore properly deal with my taxes. When I finally filed, I quizzed my CPA on several things including the concept of branching out and including more freelance audio work and film making in my repertoire.

My concern was that these other activities might be classified only as “hobby income” by the IRS, thereby nullifying any deductions I might be entitled to take otherwise. My CPA advised me that several things I was already doing in my freelance writing and editing work would apply for this new possible source of freelance income.

What follows SHOULD NOT be considered any form of advice from me to you, it’s just me musing out loud about what I’ve been told.

For example, I am told that “hiring” someone to work for me on a freelance basis as needed and issuing a 1099 for them is a signal to the IRS that you’re doing much more than just hobby work. This establishes a paper trail that hobbyists would not bother with. Joining a professional association for the type of work represented by my new income streams–live sound, field recording, film making, editing audio/video–would also go toward convincing the IRS that it’s a serious concern.

That move I’ve already made–I’m a member of ASCAP (The American Society of Composers and Performers) and a member of the Audio Engineering Society. I actually belong to more recording associations than writing-related ones!

My CPA told me the standard practice of keeping a separate credit/debit card for your business and maintaining a separate personal account is crucial, as is keeping careful track of your business spending versus personal spending. It’s one thing to take a “draw” on your business account, it’s another to buy groceries with your “corporate card”. These practices only make sense to me, and they are the kinds of details that do get more complicated as you get more successful…but the rewards are well worth it.

Keeping the IRS happy is one of my priorities–it’s a standard part of doing business AS a business. Keeping it all above board, moving in the right direction and maintaining your records is just as important as finding new clients and keeping ‘em.

Not Freelance Tax Advice: Federal Income Tax Deadline Extensions

Joe Wallace Turntabling Rare RecordsMany freelancers–including me–truly dread tax time. And many of us find ourselves needing to file an extension so we can eventually get our act together and get the paperwork submitted.

Since I am the head of the Chicago Chapter of the Freelance Tax Procrastinator’s Union Local 312, I thought it would be a very good idea to post something about how to file an extension on your Big Scary Federal Income Tax paperwork for 2012.

AND since I am NOT a tax professional, it seems best to simply quote the IRS chapter-and-verse on the subject rather than try to give you some kind of pithy words of wisdom.

Thus sayeth the Internal Revenue Service:

If you are not able to file your federal individual income tax return by the due date, you may be able to get an automatic 6-month extension of time to file. To do so, you must file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return by the due date for filing your calendar year return (usually April 15) or fiscal year return. This form is also available en español.”

See the IRS official site for more information, but it’s critical to note the caveat that you must apply BEFORE the due date (traditionally April 15 unless it falls on a weekend, in which case there may be a shift to the previous or following business day). Don’t delay if you need an extension–follow the links and fill out the paperwork as soon as you can.

Joe Wallace is a freelance writer, social medial manager, editor, roving DJ and vinyl collector. His vinyl blog is Turntabling.net and features a large gallery of truly awful record album covers. He has not yet filed his income tax extension paperwork, which means the clock is ticking….

Tax Time For Freelancers

Joe Wallace Freelance Social Media

by Joe Wallace

Are you ready for tax time? One very important set of numbers you should be crunching–or planning to crunch next year–is the work you have donated for charity. Have you done any freelance work for your favorite causes? If not, consider doing some this year in anticipation of next year’s tax season. In addition to supporting a worthy organization that could use your skills, you’ll be able (with the advice of your favorite tax prep expert) take the allowable deductions in the appropriate manner.

Update: I’ve just gotten back from my new CPA (my first ever!) who tells me you need to be able to show a financial investment–not just a time investment–in your charity work in order to take a deduction for such involvement.

For example, as a freelance editor I could donate my time, which is done for the satisfaction of a cause well-supported–the IRS won’t cut you a break for that. But if I SPEND money to support my cause, it’s closer to being deductible. What’s the difference between a simple donation and, say, offering to pay part of the costs associated with a charitable event? Your tax preparer knows the answers–be sure to ask!

Save yourself some tax pain and give something back at the same time–you’ll be glad you did. And yes, the reason why this is top-of-mind for me is that today was the day I got to deal with the tax man…

Advanced Tips for Freelancers: Tax Resources




This is the latest entry in our series of short clips featuring advice and tips for freelancers. This one covers freelance tax resources, and if you need extra time to jot down any resources you find in these clips, you can always hit the pause button…we’ll be posting some longer clips featuring podcast-style discussion of the pros and cons of freelancing soon.

The 411 on new 1099-MISC tax rules for freelancers

Not many headlines stop me in my tracks, but this one from CNNMoney.com Small Business did. (WARNING: You might want to swig some Peptol-Bismol before visiting the link.)

Health care law’s massive, hidden tax change

Currently, we’re all familiar with receiving 1099s at tax time; you’re also supposed to follow up with any client who owes you one. For those of us who hire other freelancers or legal services in excess of $600, you need to send 1099s to them, too. No big deal, it’s part of being in business for yourself.

But the new healthcare law slides a pair of nasty little requirements into your accounting for 2012 and beyond. You’ll now need to:

  1. Track not just services over $600, but tangible goods you purchase, and
  2. Send 1099s not just to individuals, but to corporations.

So, spend more than $599 and you’re going to send a 1099-MISC Apple or Dell, after researching their federal tax information. Same with GoDaddy, Staples, Costco, Verizon, Exxon and so on. Regardless of whether you are thrilled or horrified at the healthcare law, there’s no question this will add significantly to your accounting workload. (And you might want to stock up on stamps.) Naturally, our friends in D.C. are saying it’s for our own good, because it will aid in tax compliance to help pay for the new benefits.

Philosophically, I take issue with that concept, or at least with the execution. I pay my taxes willingly, but the process already consumes more than its fair share of my time and energy. $600 is an awfully low threshold nowadays, and this puts a burden on the people least equipped to handle it, in order to “police” scofflaws. I suspect it is laying the foundation for a VAT tax in our near future.

I also suspect it will create more unwitting criminals through tax bureaucracy. This opinion from a respected registered investment adviser, “1099 Mandate from Hell Slipped into Health Bill,” concludes: “Clearly this is insanity. If enacted, it will be the most widely ignored IRS regulation in history.” Time will tell.

New Freelance-Zone contributor Jake Poinier is the founder/owner of Boomvang Creative Group, the newly launched advice blog for freelancers, Dear Dr. Freelance, and a ruminator on assorted business topics at Jake’s Take.

The Freelance Business Tax Break You Didn’t Know You Had

money This post is sponsored by Outright — Your Livelihood, Right Now.  Getting your taxes right with free bookkeeping.

by Joe Wallace

Some bloggers and freelance writers like me who specialize in finance writing are afraid to go on the record about giving tax advice. They issue these disclaimers saying, “this is not tax advice”.

And while I am not a tax professional, I do believe a writer should stand by their words or don’t write them at all–I’ve got the guts to say this is tax advice, plain and simple. It’s advice, it’s about taxes, and I’m giving it. And there’s no possible way to get into trouble taking this advice–in fact you might get the exact opposite effect. The IRS may actually like you better for doing it.

And yeah, transparency alert, I’ve given the “this is not advice” disclaimer myself in the past, but I’m done with all that. Let’s live like crazy people and really go out on a limb here. Woohoo!

I talk a good game, but this isn’t some kind of nutty tax protester advice I’m handing out here. Instead, I’m telling you to find ways to love the IRS. The IRS is your friend. Keep saying that to yourself long enough to get past April 15th, mkay? Be dilligent, rely on good records, and all that. But that’s not the “wisdom” I need to impart today.

Here’s my earth-shattering tax advice. NEVER ROUND YOUR NUMBERS on deductions and related details. Use exact figures.

5MinIRS_300X300

Do it the hard way and write in exact figures right down to the dollars and cents for your expenses  and deductions. Same goes for when you calculate them–why cheat yourself out of those extra cents? They add up. Five cents here, ten cents there…if you have over 100 receipts, 500, a thousand, well, you get the idea. No, it’s not a fortune. But add that to your SEP IRA, your mileage, your legitimate business expenses for meals and incidentals…and there’s also this other thing.

The headline of this post implies that not rounding your freelance deductions is a tax break you didn’t know you had. That’s true about getting a more exact figure to put in your Schedule C income tax forms, but it’s also possible, according to Business Week writer Karen E. Klein, who says putting in exact figures looks more like you’re using your actual records instead of guessing, which the IRS is inclined to take a dim view of.

Avoiding an audit sounds like one hell of a tax break to me.

This post is sponsored by Outright — Your Livelihood, Right Now. Getting your taxes right with free bookkeeping.