Tax Basics for Freelancers

wordleHow To Survive Your First Tax Year As A Freelancer

By Elaine Nadalin

If you are a freelancer, you have plenty of company: more than 53 million workers in the U.S. identify as  either full-time or part-time freelancers. Whether you are a full-time freelancer or freelance on the side in addition to a full-time job, getting through your first tax year as a freelancer can be challenging unless you prepare in advance and stay organized throughout the year. Here are some tips to get you started:

If you have multiple clients, set up income and expense files for each one. Let’s assume you have a landscaping business, and you have three clients to start with. You would set up a paper or software ledger for “Miller: Income/Expenses” and follow the same format for your remaining three clients. You’ll be merging all of your income and expenses data at the end of the year when filing your taxes, but maintaining a separate ledger for each client account will save you many headaches later on.

When you begin working for a client, be sure to ask for a W9 form if they haven’t already provided you with one. If you earn more than $600.00 from any client, they will need to report your earnings to the IRS, using the data from the W9 form. You may also print out a W9 form from the IRS website if your client doesn’t have one for you.

You will need to report any and all earnings to the IRS, regardless of whether or not they are at the $600.00 threshold. At the end of the year, any client for whom you earned more than $600.00 must issue you a 1099-Misc no later than January 31st. Be sure to compare your earnings figures from that client with the figure shown on the 1099-Misc. Discuss any discrepancies with your client or their payroll service.

Track Income and Expenses

Stay organized: Set up an accounting and filing system that you will use. Many of the available accounting software packages available today will automatically categorize your expenses for you as you enter them, and also offer the option for you to manually assign the proper tax categories (“Fixed expense: rent”). Set up a filing system for all receipts related to your business. Enter the receipts into your accounting software (or ledger if you prefer to keep records by hand) and the category.

For receipts for mixed items, such as groceries and business supplies from that huge Target run, take a few seconds and circle the items related to your business. Those ink jet cartridges that cost you a fortune? Find them on the receipt, circle them and note “office supplies” or similar. If it’s an item specifically related to a client account, make a note of that (“Peat moss: Miller”) Make the same notation on your expense records and tuck away the receipt.

If you use your car or truck in the course of conducting business, keep track of all your vehicle-related expenses: fuel, repairs, insurance, registration, and mileage. Keep a mileage log throughout the year, and note which miles are business-related and which miles are personal use. A spiral-bound notebook with categories for dates, account name, and beginning and ending odometer readings is usually enough for most freelancers.

The percentage of your deductible vehicle-related expenses depends on many factors, and it’s best to check with a tax pro regarding your specific vehicle-related expenses. Be sure to document any vehicle-related expense in your accounting records, along with the associated client name. “Mileage: Garcia” seems small now, but it will jog your memory at the end of the year when you are gathering your tax records and filing your return.

If you work from home, you may be able to take the Home Office Deduction. You may be eligible to deduct a percentage of certain expenses such as rent or mortgage, utilities, repairs, security system, and insurance. Be sure to categorize these expenses in your records each month.

Those pesky quarterly taxes: It’s true. They exist. If your net earnings as a freelancer are  $400.00 or more,  you are required to file a tax return. Most freelancers can use the Schedule C or C-EZ form on their 1040 tax return form. Freelancers are obligated to pay self-employment tax in addition to income tax each year. As a general rule of thumb, quarterly taxes are based on the prior year’s tax return. IRS form 1040-ES includes a worksheet for calculating your estimated taxes. Quarterly taxes cover your contributions to Social Security and Medicare.

Don’t let the thought of taxes scare you out of freelancing. While modern tax prep software can walk you through the tax filing process for freelancers, it’s best to check with a qualified tax pro when starting your business. They can advise you on your specific business scenario, and make recommendations for staying on top of your tax obligations.



Your Guide to Tax Forms

Just What Do Those Tax Forms Mean, Anyway?

By Elaine Nadalin

If you’re just starting your first job and making student loan payments chances are you will be encountering a series of tax forms throughout the year and throughout your adult life. Here’s a quick breakdown of some of the most common you may encounter.

W2 Wage and Tax Statement If you are on an employer’s payroll as an employee, you’ll receive this form in time for tax season. Employers are required to mail this form to you no later than January 31st. It will have a breakdown of your earnings and deductions (federal and state tax, for example) for a specific tax year.  Compare the figures on your W2 with the figures on your last paystub of the tax year. If there are any discrepancies, be sure to follow up with your employer.

W4 Employee’s Withholding Allowance Certificate. Chances are you filled out this form the day you were hired with your current employer. Make sure your writing is legible and all other information is accurate when you complete this form. It’s a good idea to fill out a new W4 when your tax status changes, such as getting married, having a child, or other changes in your household that could affect your deduction status.

W9 Request for Taxpayer Identification Number and Certification: If you work for an employer as an independent contractor (employer doesn’t deduct any payroll tax from your paycheck) you will need to fill out this form at the time your start working for that particular employer or client. If you earn $600 or more from that particular job, they will need to report your earnings to the IRS when they file an informational return.

1099-MISC: If you are a freelancer or independent contractor, you will use this form to report your earnings to the IRS. Generally, if you provide services to an employer and you earn over $600.00, they are required to furnish you with a copy of the the 1099-misc for your own return. You will need to report these earnings on your tax return and pay any related taxes, such as self-employment tax. Check with a tax pro regarding your specific self-employment scenario if you have questions.

A 1099-Misc can also be issued for other forms of income such as royalties, rent, prizes, winnings (such as that huge Vegas payout earlier in the year) but they’re most commonly issued to independent contractors or freelancers.

1098-E Student Loan Interest: If you have any post-secondary education such as college, chances are you’re chipping away at student loan debt. Each lender for your student loans will issue you a 1098-E if you paid more than $600 in student loan interest during the year. The good news? You may be able to deduct that interest, depending on your specific tax situation and income level.

Depending on your particular work status and student loan status, you’ll encounter different tax forms at the beginning and the end of the year. Look them over carefully and check with your employer or student loan servicer if you notice in errors or discrepancies.

Double-check that the social security number on the form is accurate, along with your name. Report any errors immediately and don’t let those errors slide; correcting them later on can be a headache, especially if you filed a tax return with an incorrect social security number or misspelled name.

As your circumstances change, so will the type of tax forms you receive. Taking on investments, a mortgage, rental properties and other obligations all have tax forms to go with them.

As with any tax matter, check with a qualified tax pro to address your specific questions. Keep everything is an organized, safe place so you’ll have the forms handy when it comes to tax filing day.

The IRS Audit Q & A: Part 2

wordlePart 2: What Happens Next?

(Disclaimer:  The information contained in parts 1 and 2 are for informational purposes only and are not designed to replace the advice of a licensed tax professional. If you are facing an IRS audit or other complex tax issue, seek the advise of a tax professional who can best assist you with your specific tax matter).

You have your audit notice in hand and have an idea how the audit process works. What happens once the audit begins?

How long does an audit last? This depends mostly on the complexity of the audit, the documentation review process, and scheduling. If both you and the auditor are able to keep each appointment as planned, that will help the audit progress smoothly and to finish up in a reasonable length of time.

An in-depth audit  may require more meetings and more supporting documentation, while a less in-depth audit will take less time. Be sure to provide any requested documents or paperwork as soon as you are asked for them.

The audit is finished. What will happen next? Once your documents and records have been reviewed and you’ve had a chance to meet with an auditor (if required) your audit is officially wrapped up. An IRS audit finishes in one of three ways:

  • No change: There are no changes to be made to the records and there is no money owed.
  • Agreed: You understand and agree with the recommended changes. You’ll be asked to sign an audit report and to pay any money you may owe, but try not to panic: you can make payment arrangements. Here is where having a licensed tax pro at your side will be to your benefit. They will be able to walk you through your payment options if you owe money but are not able to pay in a lump sum.
  • Disagreed: You may understand the auditor’s recommendations/findings, but you don’t agree with them. Generally, you can request a conference with a manager and/or file an appeal. This is where having a licensed tax pro by your side is essential. While the IRS is not out to deceive you, the audit process can be confusing if the agent doesn’t take the time to fully explain everything to you.

There is no doubt that an IRS audit can be stressful for the average taxpayer. Anything from the straightforward informational audit to a full-scale series of appointments with an IRS examiner can rattle your nerves. It pays to be well-organized in advance and to respond quickly when you do receive an audit notice from the IRS. Find a reputable tax resolution firm that will match you with a tax pro that can guide you through the audit process, assist you, and even represent you in dealing with the IRS.

An IRS audit is never anyone’s idea of a good time. By knowing that to expect and understanding how the process works, you’ll be much less likely to break out in a cold sweat if and when you receive an audit notice. Be informed, be organized, and have a tax pro by your side to help you understand the murkier aspects of an audit. Your nerves will thank you.

The IRS Audit Q & A

Part 1: IRS Audit Basics

You’ve maybe heard of businesses or individuals who have encountered the dreaded IRS audit. Just the term “IRS audit” is enough to make most of us break into a cold sweat. We’re here to help lessen the fear and help you understand what can happen during an audit.

Here is what you need to know about an IRS audit and how to prepare should you ever be audited. This is the first of a two-part series on the basics of an IRS tax audit. Your individual circumstances may vary so it’s always best to check with a qualified tax professional regarding your specific audit matter.

What is an audit? The term “audit” refers to the process of reviewing an individual’s or business’s financial records to ensure all information is accurately reported to the IRS.

How will I be notified? Taxpayers are notified in one of two ways: letter or phone call. In the event you get a phone call from the IRS, you will also receive a letter confirming the nature of the call. Whatever you do, don’t disregard the audit notice. Follow up with all requested information before the deadline.

My tax returns have been accurate. Why did I get selected for an audit? In many cases, audit selection is random and unrelated to whether or not a return in accurate. In other cases, you may have been selected due to a discrepancy in reporting information on your income forms (W2, 1098 or 1099, for example) provided by your employer(s) and what you reported on your return.

In other instances, your tax return may have been flagged because you have conducted business (as a partner or investor) with another person or entity who is also being audited.

I got an audit notice. What happens now? What happens next largely depends on what type of information is needed, and where the audit will be conducted. An informational audit involves you sending in documentation that is requested by the IRS. There will be no need for a face-to-face meeting at that time. Once your documentation is reviewed, you will be notified by the IRS of their decision and any further action you will need to take. Quick and somewhat painless.

In a field audit, you will meet with the IRS auditor in your home, place of business, or at your tax professional’s office. Here is where your organizational skills will pay off. Bring your tax records and supporting documentation with you to the meeting site. IRS examiners are human, too, and will appreciate it when you are able to whip out the needed documentation quickly and hand it to them. Don’t be that person with the overflowing shoebox of scattered paperwork.

An office audit involves meeting with the examiner at an IRS office, usually the one closest to your home or place of business. Again, have  all the requested information organized and at your fingertips.

Regardless of the type of audit, you must meet all deadlines for replying to requests for information and keep all appointments with your IRS examiner. Be ready to provide all the requested supporting documentation and information.

And yes, you do have rights. While an audit isn’t the nasty experience you may have heard of from friends, family and random strangers, it does help to know that you do have rights and that you can have representation during your tax audit.

Tomorrow: What Happens Next?

If you’ve been selected for an IRS audit, you don’t have to go it alone. Our qualified tax professionals  can help you through the IRS audit process and answer your questions. Give us a call at (888) 224-3004. You can also chat with us by clicking the white “Start Chat” button in the upper right-hand corner of our website.



Organizing Your Tax Information…Without Losing Your Mind

Photo: Ladyheart/morguefile
Photo: Ladyheart/morguefile

Time To Banish That Shoebox For Good

By Elaine Nadalin

If the April 15th tax deadline makes you break out in a sweat, you’re not alone. While many tax preparers will send out a tax organizer form to fill out before your appointment, they aren’t of much use if you can’t locate your income, deduction and expense information. Here are some great ways to get organized ahead of time and reduce tax-day induced stress.

Keep Track: Fortunately, there are many useful software packages for tracking income and expenses such as Quicken or similar products. They vary from simple to complex, depending on your particular needs. Or you may want to keep your records by hand.  This boils down to personal preference and convenience. The key is to set up a system you will use on a regular basis with minimal headaches. Make it painless, make it accessible and easy to use, and you will use it.

Electronic or paper? While most people prefer to scan paper items into an electronic file and toss the originals, much of it comes down to personal preference. The IRS has been accepting scanned documents since 1997. Keeping electronic files might be more appealing if you’re short on storage space or if you don’t want the hassle of keeping track of small pieces of paper.

Create a system…and stick with it: Most taxpayers will do just fine with a simple filing system or portfolio with multiple slots for paperwork. Label each section with categories such as “Income” “Bank Statements” and so forth. They key is to update your filing system on a regular basis. Bank statements can be filed once you are done reconciling your account, for example.

No matter how you configure your filing system, make sure you use it consistently. Don’t fall back into the habit of stuffing paperwork into a box or random folder never to see the light of day until April 15th.

Customize: If you are a taxpayer who also itemizes deductions each year, be sure to account for those categories as well. For example, if you make frequent charitable contributions of either goods or funds, be sure to file those receipts in the proper file as soon as you receive them and document then. Same goes for medical and child care expenses if you are eligible to deduct those.

By having a separate sub-file for each category, filing your income taxes will be much easier as everything is right where you need it when you need it. That tax organizer form that was sent out last year that made you break out into a cold sweat? No problem this time.

Be meticulous: If you are self-employed, a homeowner with multiple rental properties or another individual with receipts and expenses in multiple categories, create a sub-file for each category. For example, set up a file for each rental property where you can stash mortgage statements, tax bills, repair receipts, and other expenses. You can break out the categories even further by assigning a sub-file for each rental property, e.g. “Rent-Green Ave. property” and “Repairs-Green Ave. property” and so on.

If you are self-employed, be sure to set up sub-files for your income and expenses. If you have multiple clients, set up files and sub-files for each one. For example, set up a main file for your client, and then sub-files for income and expenses related to that account. Regardless of whether these items are recorded electronically or by hand, it helps to keep the receipts organized and easily available.  When you tax preparer asks, “Do you have that receipt for March travel expenses related to the Garcia account?” nothing feels better than to reach into your files and say, “Yes, I do. It’s right here.”

Your tax preparer will love you. Guaranteed. If you file your own taxes, you will love yourself come April 15th.

Keep it safe: It’s always a good idea to keep receipts, paid invoices and other tax data in a safe place. While an employer can issue a duplicate W2 should yours ever be destroyed, other documents, such as receipts, are not as replaceable. Consider keeping your tax files in a fire-proof box or safe. At the very least, stash your tax documents in a safe place out of reach of children and pets, and where they can be out of harm’s way. Nothing adds to the stress of filing day quite like trying to decipher the dollar amount printed on a coffee-stained receipt for that closet full of clothes you donated earlier this year.

However you choose to organize your tax data, the key is to get organized and stay organized. Tax day is much less intimidating with time spent organizing your tax data throughout the year. In fact, you may just get so organized that you will want to file before April 15th. Really.

Do you have some tax document organizing tips that have worked for you? Leave us a note in the comment section below.

10 Traits Of A Reputable Tax Resolution Firm

How To Tell The Good Guys From The Bad Guys…

There is no doubt the recession and the ensuing financial fallout left many taxpayers in distress. Maybe you’re one of them.  Maybe you’re haunted by back taxes. Liens, IRS levies, and wage garnishments for unpaid tax to the Internal Revenue Service (IRS) and state tax agencies can all add to the stress of making ends meet. Dishonest tax resolution firms have emerged in recent years, eager to separate distressed tax payers from their money in exchange for little to no service. Are you in need of tax resolution assistance? Here are 10 traits of a reputable tax resolution firm.

1.  Credibility: A reputable tax firm employs the following staff members: Tax Attorneys, Enrolled Agents, and Tax Consultants. A good firm will also have support personnel such as Case Managers, who will assist you as your case moves from intake to resolution. Beware of firms that don’t have these personnel on staff. Only tax attorneys and Enrolled Agents can negotiate with the IRS or state tax boards on your behalf. You want the best representation possible, and a reputable firm will provide that for you backed by well-trained and educated support staff.

2.  Reputation: You want to ensure your tax resolution firm has a sterling reputation. The Better Business Bureau is an excellent starting point. Personal recommendations from friends and family are also a good source.

3.  Integrity: Beware of any tax resolution firm that doesn’t disclose all fees BEFORE they are rendered. There should be no surprises. A reputable firm can work with you if you aren’t able to pay their full fee upfront.

4.  Service by Licensed Professionals: Your case should be handled directly by a tax attorney, Enrolled Agent and/or a Tax Consultant working in-house. At no time will a reputable tax firm outsource their work to a “back end” company. Ask if your tax matter will be handled in-house. If you can’t or won’t get a straight answer, look elsewhere.

5.  Transparency: Your tax firm should have all information easily available for you, either in person or on their website. You should be able to access full information regarding staffing, fees, hours, and policies. Are you dealing with a firm that won’t disclose or offer that information? Time to find one that will.

6.  Honesty: Some taxpayers may not qualify for an Offer In Compromise, for example. Is your firm honest with you about the extent to which they’ll be able to help you, or are they evasive when questioned? Reputable tax firms will be honest in telling you whether or not they will be able to assist you. Avoid firms that won’t shoot straight with you when it comes to your tax matters.

7.  Reasonable and fair: A reputable tax resolution firm will charge a fair and reasonable fee to assist you with your tax matters. You will be offered an honest assessment of your tax situation, along with a reasonable fee. Fees are influenced by many factors: labor hours in researching your tax matter, outstanding tax/lien balance, the level of staff needed (tax attorney or Enrolled Agent?) among many. Dishonest firms will charge an outrageous sum. Do your homework. Call or email different firms. If the quote seems outrageous, it probably is. A reputable firm won’t strip you of your hard-earned money.

8.  Discretion: If you’ve ever seen any amount of daytime television, you’ve most likely seen those loudly-produced ads for tax debt relief for “pennies on the dollar.” Avoid them. They will most likely charge an exorbitant fee (they need to offset those advertising costs somehow) or will accept your case, even if you don’t qualify. A reputable firm doesn’t employ large radio and TV advertising campaigns. A good firm will rely on word-of-mouth from satisfied clients, an accessible, well-written website and social media marketing for their services. All of those approaches are low-cost and there is no reason to overcharge clients to offset advertising costs.

9.  A Stress-free Approach: A legitimate tax resolution firm won’t leave you feeling like you’ve dealt with a used car salesman. Owing back taxes or being faced with a lien or bank levy is stressful enough without the high-pressure sales pitch. A reputable firm will assess your tax situation, make suggestions, and leave the final decision up to you. Beware of high-pressure tactics to pay a fee or sign up for services that offer pricing “for a limited time only.” Head out the door and to the nearest reputable tax resolution firm.

10. Accessibility: When you call your tax firm representative, are you able to speak with the same person each time, or are you passed from person to person? Do you know your representative’s name? Do they show a genuine interest in you as the tax payer and do they convey an honest desire to help you? Do they keep you informed as your case progresses? All of these are signs of a reputable tax resolution firm, as they hire those who have the utmost integrity and desire to help distressed tax payers.

If you are a distressed tax payer, we can help. We offer service that is fair, reasonable, and suited to your needs. You can contact us by phone at 888-224-3004. If you prefer, you can also reach us via  chat by clicking the white “start chat” button on the upper right hand of our webpage. You can take comfort in knowing your tax matters will be handled discreetly, professionally and with integrity. We are among the “good guys” and  we’re here to help you.

Ideal Tax Solution Press Release.

Ideal Tax Solution, LLC Finds That Corporations Continue to Flee the U.S. in Search of Lower Corporate Tax Rates
U.S. corporations continue to move their operations overseas as the Obama administration urges immediate action by lawmakers.


Why DO I Need help with Back Taxes?


Why Do I Need Help with Back Taxes…I Did Everything Right, Didn’t I?

Did you? That’s always the question isn’t it…the $64,000 question? And, let’s hope that little oversight on your income or overstatement on your deductions doesn’t end up coming close to that amount, much less surpass it.

“There’s just one thing I can’t figure out…my income tax!” – Nat King Cole

The great tax debate over income tax, past or present, is destined to be with us as long as the Internal Revenue Service is governed by its current rules and regulations. Correct (financial) reporting and accurate (deduction) analysis form the foundation for trouble free living, at least as far as the IRS is concerned. It is not their direct intent to complicate your life, so why give them reason to do so?

Do they purposely make comprehending the tax code as complicated as it can possibly be? It would be hard to get them to admit there is, indeed, a few people sitting around a table in a secluded office room somewhere, spending serious time coming up with convoluted ways of translating a simple accounting formula into a tangled web of mathematical tabulations. But, it certainly seems a reasonable conclusion.

It is not hard to imagine that being the case when faced with the very unpleasant reality of having to make sense of why the IRS is asking you about tax returns dating back several years. It was hard enough understanding them at the time, much less being expected to clarify specific items years later… items which you paid good money to a so called professional tax preparer for the exact purpose of accurately summarizing your taxes for you.

Or, you could be one of a fading breed of noble thinking, strong willed taxpayers who firmly believe the ability to properly prepare a tax return is, or certainly should be, within the grasp of every American. If only that was as easy as it sounds. Perhaps some day it will be.

The hard truth is, in the eyes of the IRS an individual or corporate taxpayer is ultimately responsible for the correctly filing of a tax return. Fortunately, as a result of an increase in the number of taxpayers utilizing tax preparation companies and software programs, greater oversight is being administered over this emerging aspect of the financial services industry to better facilitate a reduction in the amount of incorrect returns being filed.

Unfortunately, the burden of adherence to the rules and regulations of the tax code falls squarely on a taxpayer’s shoulders, which means it behooves everybody, as time consuming as it may be while doing so, to go the extra mile at tax time. Fully examining your return will go a long way in helping you avoid a surprise call by the IRS…years after the initial filing.

Here’s a good rule of thumb when preparing your return yourself or having someone do it for you – get it right the first time! If a question arises (in your mind) about the validity of an income or deduction entry during the original preparation, it is not going to be any easier to answer down the road, especially while an IRS agent is waiting on the other end of the line for a response.

If you desire clear sailing in life with regard to the IRS, then be clear about your financial situation the first time…hopefully, before tax day!

Written By: Tom The Tax Adviser!

Ideal Tax Solution, LLC Tax Debt Relief Service Fights Back Against Cyberbullying

Ideal Tax Solution, LLC Tax Debt Relief Service Fights Back Against Cyberbullying

Ideal Tax Solution, LLC, becomes more transparent enrolling 3rd-party review websites.

Costa Mesa, California (Ideal Tax Solution Blog) May 21, 2015

Ken Mason general manager at Ideal Tax Solution admits ‘the tax debt relief industry is complicated enough. It’s an often misunderstood service with unrealistic expectations but we try to keep it simple and transparent. From disgruntled employees, aggravated consumers, vendors and now sleazy entrepreneurs are all learning the leverage they can place on a business when turning to the Internet. At first, the power of the crowd was a great tool for customers to pool their collected wisdom. Of course, all things that first start out as well intention power seems too tempting for abuse.” Mason details his opinion. Continue reading Ideal Tax Solution, LLC Tax Debt Relief Service Fights Back Against Cyberbullying

Ideal Tax Solution, LLC, Creates Senior Tax Analyst Team to Give Expedited Service to Those Who Owe Back Taxes

Ideal Tax Solution, LLC, Creates Senior Tax Analyst Team to Give Expedited Service to Those Who Owe Back Taxes

Ideal Tax Solution, LLC hires team of seasoned Senior Tax Analysts to give consultations for those that have IRS tax debt.

Costa Mesa, California (Ideal Tax Solution Blog) May 12, 2015

Ideal Tax Solution, LLC, Creates Senior Tax Analyst Team to Give Expedited Service to Those Who Owe Back Taxes.

Ideal Tax Solution, LLC, Creates Senior Tax Analyst Team to Give Expedited Service to Those Who Owe Back Taxes
Ideal Tax Solution, LLC, Creates Senior Tax Analyst Team to Give Expedited Service to Those Who Owe Back Taxes

Ideal Tax Solution, LLC, has sifted the tax resolution industry, hiring the best talent of experienced tax analysts armed with many tools in tax resolution. “We find more and more people need Senior Tax Analyst help for tax debt relief not just any tax pro will do anymore” Murad Khatib of Ideal Tax Solution management team states. On April 9th 2015, in a prepared remark IRS Commissioner Continue reading Ideal Tax Solution, LLC, Creates Senior Tax Analyst Team to Give Expedited Service to Those Who Owe Back Taxes