Accounting and Taxes

Paying Taxes Quarterly

Self-employed workers typically owe taxes quarterly if their tax bill is going to be more than $1,000 for the year, and there are penalties for underpayment. To avoid penalties, you have to pay at least 90% of your taxes owed for the current year or 100% of the tax owed on last year’s tax return…

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Overview of Common Tax Forms

Form 1040 – The main tax document that everyone fills out is called a Form 1040. This is the tax form headquarters and it serves as the center of all the forms and attachments. In 2018, the IRS shortened the Form 1040 to make it simpler. As a result, it moved a lot of the…

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Getting a Tax Identification Number (TIN) and Avoiding Withholding Taxes

When you start your business you may need to get a TIN (“Taxpayer Identification Number”) or EIN (“Employer Identification Number”) and/or a business license from your city or county. The business license will typically depend on what industry you operate in, and the city, county, and state’s requirements. Some common license examples are business operating…

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Sample Schedule C Deductions

As a self-employed person, one of the biggest benefits is that you get to deduct a wide variety of work-related expenses from your taxes. This is a luxury usually only afforded to wealthy business owners. It is a huge source of savings that you absolutely need to be taking advantage of (and that’s why it’s…

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Tax Deduction Checklist

Here are some standard things you can deduct from your income taxes, in addition to your itemized/standard deduction:  The employer-equivalent portion of your self-employed taxes  Healthcare premiums and some expenses can be deducted (premiums are deducted in Schedule 1, more in the health insurance section).  Retirement savings made to a qualified plan (taken in Schedule…

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Deducting Business Expenses

While there are many names for your chosen career – freelancer, independent contractor, gig economy employee, among others – it effectively means that you work for yourself, that you are running your own business! Like any company, you are allowed to deduct the expenses associated with running your business for tax purposes. This is a…

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Options for Deducting Automobile Expenses

There are two ways to handle deductions for automobiles. Generally, you have to keep track of all your expenses and deduct the total when you file your taxes. For automobiles this would include gas, repairs, car registration, lease payments, depreciation, among others. However, for vehicles there is a standard IRS mileage deduction that you can…

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Expenses on Form 1099

Some of the obvious deductible expenses may be on your 1099 form itself. For example, Uber provides a tax summary with your 1099 income, which includes expenses like Uber’s booking fees, tolls, other booking fees, and split fare fees. All of these can be deducted as expenses on Schedule C of your taxes. However, there…

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Tracking and Reporting Business Revenue

Many people talk about tax deductions (expenses), but it’s also important for you to track your revenues as well. While your customers will likely report your earnings to the IRS, there are quirks in the way those forms work which means they may not capture all of the income or they may double count it.…

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Self Employment Tax

For a W-2 salaried employee, the employer and the employee split taxes for social security and medicare, with each paying 7.65% of the total salary, or 15.3% total (the employer typically withholds this amount from your paycheck and sends it to the government for you). If you are self-employed, you must pay a self-employment tax…

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Self-Employment Tax Example

Let’s say that you had $100k of self-employment income on your Schedule C. When figuring out the self-employment tax that you owe on your Form SE, you get to reduce the self-employment income by half of the self-employment tax rate. So in our example, that means [$100k – ($100k x 15.3% / 2) = $92,350].…

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Free Tax Filings for Incomes Under $73K

The IRS had an agreement with the major tax software companies which required those companies to help the government develop a free tax software for people with incomes below $73k. If you qualify, you can use the link here to begin. There is also a community program called the Volunteer Income Tax Assistance (VITA) that helps…

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Tax Deduction for Living Overseas

The federal government has a deduction available for people who work overseas called the Foreign Earned Income Exclusion. To qualify you must (i) work full time inside a foreign country for a full calendar year (called the bona fide residence test), or (ii) work outside of the USA for 330 days out of any 365…

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Itemizing Deductions vs. The Standard Deduction

Taxpayers have two options for their personal income tax deductions on form 1040, the standard deduction or itemized deductions. You can’t do both, you have to choose one or the other.  Generally, if you don’t have a lot of deductible expenses then you’re likely better off taking the standard deduction. For 2021, the standard deduction…

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Tax Savings Available to High Earners from S-Corporations

An S-corporation is a tax election that an owner can make under Subchapter S of the IRS Code. If an S-corp election is made, corporate income, losses, deductions, and credits pass through to the corporation’s shareholders for federal tax purposes, similar to how sole-proprietorships or single-member LLCs get taxed. For higher income earners, an S-corp…

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2021 Child Tax Credits

The 2021 child tax credits that the government is sending out as part of the Covid-19 stimulus package is based on your 2020 earnings. If you are expecting higher income in 2021 than you had in 2020, this could cause you to have to repay these funds when you file your taxes.  For 2021, the…

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R&D Tax Credits

The government offers R&D tax credits that offset federal income taxes, and in certain circumstances, payroll taxes. A lot of states offer similar credits, so check with your specific state or your local accountant as well. The program is outlined in IRC Section 41 where it is officially called “Credit for Increasing Research Activity.” However,…

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Business Losses on Personal Taxes

What happens if you just started your business and your expenses are greater than your losses? In that case, you’ll have a business loss to report. Note that this only applies for a pass-through tax vehicle – i.e. a sole proprietorship, your own LLC, your own S-Corp (it’s more complicated for an S-Corp, which we’ll…

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Tax Deduction Example for Ride Sharing

Outside of the vehicle (see the section on deducting expenses associated with cars), there are other expenses that you can deduct as well. Since you use your phone for work, you can deduct a portion of your cell phone bill. However, you can only deduct the percentage of the time that you’re using it for…

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Overview of Depreciation

Expenses typically fall into two categories: those that are deductible right away – for example, a dinner with a client – and those that have to be deducted over a longer period of time. An example of the latter expense is depreciation. Depreciation is used for many larger purchases like cars or a renovation on…

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Section 179 Deductions

Section 179 allows you to deduct certain types of property as an expense instead of depreciating it, if it’s purchased for use in your business. These deductions are capped at $1 million in a year. Additionally, your 179 deductions can not exceed your income for that year. However, if this limits you, you can roll…

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199A Tax Break or Qualified Business Income Deductions

As part of the 2017 tax overhaul, there is a new 20% deduction on Qualified Business Income (“QBI”) available to self-employed workers with pass-through taxation (LLC, S-corp, sole proprietorships; basically anything that’s not a C-corp) in the following income brackets: Single Filers – Threshold is $164,900, with a phase-down from there to $214,900 Married Filing…

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Health Insurance Tax Deduction

Most self employed workers can deduct premiums paid for health insurance, dental, and certain long-term care insurance. This is typically a large deduction, so you should make sure you qualify. To benefit from this deduction, you must not be eligible for an employer sponsored plan, either from your employer or your spouse’s. If you meet…

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CARES Act Self-Employment Deferral for 2020

Section 2302 of the The Coronavirus Aid, Relief, and Economic Security Act (“CARES”) Act made changes that allowed self-employed people to defer 50% of the social security tax on their net earnings from March 27, 2020 to December 31, 2020. They refer to this as the “payroll tax deferral period”. 12.4% of your taxes go…

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