Why You Get Stuck in a Tax Pain Cycle

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In today’s episode, I’m chatting about the common cycle of pain self-employed individuals face during tax season and how tax preparation services often lack the education necessary to break this cycle.

Join me today to learn how you can implement systems that can help you avoid large, unexpected tax bills and penalties going forward. 

Also mentioned in today’s episode: 

• The cycle of pain: the initial challenges 4:12

• Surprise tax bill and its consequences 4:50

• Breaking the cycle of pain with simple systems 10:25

If you enjoyed this episode, please rate, review and share it! 

Links:

Register for the free class, Make Taxes Simple and Stash an Extra $130k in Your Savings.

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Why Business Deductions Save More Than You Think: Self-Employment Tax: Money School

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In today’s episode of the Money School Bonus Series, I’m explaining what self-employment tax is, why tax deductions are so important as a creative entrepreneur and how they save you more money than you may think. 

Join me in this informative episode to learn the details about self-employment tax and how you can make sure you’re getting the most out of your deductions each year. 

Also mentioned in today’s episode: 

• Understanding self-employment taxes 1:23

• Tax brackets and what they actually mean 3:44

• The average tax rate for self-employed people 6:16

• Self-employment taxes explained 10:52

• Why you need to be tracking all of your expenses 13:02

• Getting the most out of your deductions 22:11

If you enjoyed this episode, please rate, review and share it! 

Links:

https://www.sunlighttax.com/deductionsguide

https://go.sunlighttax.com/free

Some Real Numbers for Artists on the ACA Repeal

GOP Rep. Jason Chaffetz says that the American people may need to choose between a new iPhone or health care when trying to afford insurance under the new GOP bill that would replace Obamacare. Image via: istockphoto

When I went back to school for accounting, I never thought I’d get an education in healthcare. But the Affordable Care Act (ACA, aka Obamacare) forced tax preparers like me into learning about our healthcare system, because most of the credits and penalties are reconciled on the tax return. As an accountant for artists, I see the direct benefits of the ACA on my clients. I am required, per the ACA, to find out if my clients were covered by health insurance all year, and if not, I calculate the penalty for each month they weren’t. I record the premiums my clients pay, which can be a big deduction for a freelance arts worker. And I see the monthly subsidies that they get, because I reconcile them on the annual tax return (the “Premium Tax Credit”). I also calculate the 3.8% Net Investment Income Tax and the additional .9% Medicare tax for my very highest-income clients – these are the additional taxes on the top income earners that effectively pay for the subsidies provided by the ACA. This amount is only calculated on the very top dollars of their income and it hits a proportionately tiny slice of my clients.

Given this background, I have some insights on what the new Republican proposal, the “American Health Care Act” (ACHA, aka Trumpcare) would do to you, me, and our federal budget. It’s not good.  Read more...

Rent Too Damn High? Deduct Your Home Studio.

One of the best tax breaks out there is the home office (or home studio) deduction. In tax terms, this essentially turns a portion of your nondeductible personal expenses (your home) into deductible business expenses (a workplace). A lot of people are confused about the rules, and some people are scared to take the deduction at all because they’ve heard that it can be a red flag to the IRS. As long as you are following the rules correctly, there is nothing wrong with taking the deduction. And it’s a big one! So here is some help.

First, when can you claim a home office/home studio?

You have to use it both exclusively and regularly.

Exclusive use means that the space is a dedicated workspace – no kids watching TV in there after hours, no guests staying there. There is no wiggle room on this part.  read full article

Estimated Quarterly Taxes for the New Freelancer

Last Love Song, Silica and Pigment on Linen, 24" x 20", 2014, by Matt Phillips

In my last post, I addressed a common dilemma for the new freelancer - an unexpectedly large tax bill in April. I explained self-employment tax, and why it catches so many people off guard. In this post, I’ll explain estimated quarterly taxes, which are the solution to that huge April tax bill.

You’ve newly struck out on your own, and you had your first profitable year as a freelancer. Congratulations! But when you prepared your taxes, you were blindsided by the enormous tax bill. You got a crash course in self-employment tax, and now you’re ready to set yourself up better for next year. It’s time for estimated quarterly taxes.

ESTIMATED QUARTERLY TAXES – WHAT THEY ARE

Our tax system is called “pay as you go.” If you’re employed, your employer withholds taxes from your paycheck each pay period, so that at the end of the tax year, you should have already paid in approximately the amount of taxes that you owe. When you overpay, you get a refund, and when you underpay, you owe some more tax on top. But the idea is that you don’t pay all of your taxes for the year at one time - for almost everyone, setting aside that much money would be difficult.

When you freelance, there’s no employer to withhold tax for you, so it becomes your job. (Yes, another burden of the gig economy). Everyone knows, and that includes the IRS, that it’s much harder to pay one big bill than several small ones. So to approximate the withholding situation of an employer, the IRS requires freelancers who owe at least $1000 in tax to make estimated quarterly payments.

It may seem yucky to have to pay taxes four times a year instead of just once, but it’s a good thing. Breaking it up into quarters makes the payments much easier to handle. And you avoid an unpleasant surprise in April.

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