Stride has hosted several webinars that provide information on how to file taxes with 1099 income, what to deduct, and how to keep your tax information organized for the rest of the tax year. You can find recordings of these webinars below!
Taxes for Rover Sitters: https://stride.easywebinar.live/replay-rover
Taxes for Airbnb Hosts: https://stride.easywebinar.live/replay-airbnb
Taxes for 1099 Workers: https://stride.easywebinar.live/taxes-1099
Taxes for Postmates: https://stride.easywebinar.live/replay
Quarterly Taxes for Independent Professionals: https://stride.easywebinar.live/replay-q2taxes
"Quarterly Taxes for Independent Professionals" is transcribed below, and contains answers to questions like:
- What can I deduct, and how do I claim deductions?
- How do I report my income?
- What tax info should I be tracking?
"Quarterly Taxes for Independent Professionals" Transcription:
[0:00]
>> Welcome everyone to Stride’s webinar on Quarterly Taxes for Independent Professionals. My name is Tade Anzalone, and I am Stride’s resident Tax Expert, and I’m on the Member Experience team for Stride’s products, such as Stride Tax. And I’m really excited to be talking about some common questions that I get as a tax preparer, about quarterly taxes, and about taxes in general, especially for 1099 workers who are receiving independent income. So today we’re going to go over some common questions about quarterly taxes, and then some questions that I tend to get about expense tracking, bookkeeping, and preparing for audits as well.
[0:39]
>> So a little bit about Stride. Stride helps people who work for themselves save time and money. We provide software and services that help you easily tackle big, scary things like health insurance and taxes so you can get back to doing the stuff that really matters. We’re based in San Francisco and we’re looking forward to helping make this your most stress-free tax year yet.
[1:01]
>> To get the most out of this webinar, we’re going to be talking a lot about tax-deductible business expenses today. So I would definitely recommend downloading our free expense tracking app called Stride Tax. It’s a mileage tracker and an expense tracker. To download the app, you can either text the word TAX, T-A-X to 415-930-9109, this number on the screen here, or you’re welcome to go directly to the Google Play Store or the Apple App Store, and type in ‘Stride Tax,’ and download it for free directly from there.
[1:35]
>> So to start: why is it that taxes are so much more complicated, or seemingly so much more complicated when you’re self-employed? I get… I see a lot of self-employed independent contractors, who are filing taxes with business income for the first time, who are definitely much more nervous about their tax returns with business income than they would be without it. So why is that?
[01:59]
>> So one of the first reasons is: you’re dealing with different income information. You’re probably receiving income from multiple sources. Instead of receiving a W2 at the end of the year like you would at a traditional job with an employer, usually receiving a W2, and kind of plugging and going. You can kind of put it in your tax return and then be done with it. But when you’re self-employed, your income is likely coming from multiple sources. For example, if you have clients, you’re probably receiving income from all of those clients throughout the year, so gathering up and totalling up your income gets a lot more complicated. And you’re probably receiving different documentation than you’re used to. If this is your first year with self-employment income, you’ve probably received a 1099 from the past year that looked a little bit unfamiliar. So income that you receive on an independent contractor source would be reported to you on a 1099 instead of a W2. So a few unfamiliar documents there. You also probably, if you just filed taxes with business income for the first time, you probably had an unexpected tax liability, or unexpected taxes that you owed. And the reason for that is because, when you have an employer, who is withholding taxes from your paycheck for you, they are essentially remitting taxes on your behalf throughout the year. So calculating how much you owe in taxes and then paying it to the IRS isn’t really a problem when you have a W2 job, because it’s all kind of done for you on the backend. But when you have self-employment income, there is no employer who can do that for you. It’s now your responsibility to calculate how much you owe in taxes and then send it in to the IRS. Three, usually when you have an employer, they are keeping track of any expenses that you have on the job, and they’re taking care of your reimbursements for you. But when you’re self-employed, there’s no employer to do that for you. So any expenses that you incur to keep your business alive and well, you’re now responsible for that documentation rather than an employer taking care of it for you within your paycheck. And four, there are some extra forms. So when you file taxes, when you have certain kinds of income, the IRS will ask you to add extra forms to your tax return to describe that income, and business income is no exception. When you have self-employment income, you have to attach a couple of forms to your tax return to describe the income that you earned. So especially when you’re filing online, you might be surprised that you have to level-up the software version that you’re used to using for your tax preparation, so that you can account for those extra forms that you now have to file.
[04:39]
>> So what does this look like when you go to file your taxes in practice? Usually when you’re filing taxes with business income for the first time, you’ll find yourself rifling through boxes of receipts to count up all of the deductions that you could have had for your business. So especially if you’re someone who hates bookkeeping, doesn’t really enjoy dealing with spreadsheets throughout the year, you’ve probably been throwing your business receipts into a shoe box or some other location, and just telling yourself that you’ll deal with it when you file taxes. And then, you know, when tax season finally comes, you’re rifling through those various places, and your receipts, to total them up. Two, you’re probably going through all of your bank statements to find all of your business purchases, which, I don’t have to tell you, can take a long time. If you’re going through your entire bank or credit card history for an entire year, it can take a ton of time to count up all of the expenses that you hadn’t been tracking throughout the year. Income statements, like I mentioned before, when you’re self-employed, it’s much more likely that you have more than one income source, especially if you do client-based work. So you probably have records of a dozen or so income sources from the year. And then I see this a lot. A lot of people will get to filing season, and start rifling through their expenses, but they’re not entirely sure what they can deduct. And that is a perfectly normal question to be asking yourself, “What is deductible on my tax return and what isn’t?” So we’re going to go over a lot of information that you can use to figure out what’s deductible for your business.
[06:12]
>> As anyone who has just filed taxes for the first time with business income can tell you, when you don’t track your expenses, you are likely going to overpay in taxes, and we’ll go over exactly why in the next couple of slides. You’re probably going to waste valuable time finding deduction documentation, so if you haven’t been tracking your expenses throughout the year, then you probably haven’t been tracking your deduction documentation throughout the year. So if you want to deduct something, but you don’t have any proof on hand that shows that you paid for it for your business, you’ll have to rifle through your receipts, rifle through your bank statements and credit card statements to find the documentation that you need in order to deduct it on your tax return. And then it’s entirely possible that people will deduct expenses that they can’t back up in an audit. So for example, if you’re filing your taxes, and you can’t find a receipt for a really big expense for your business that you had for the year, a lot of people will go ahead and deduct it anyway, even if they don’t have the proper documentation for it. So it’s likely that if they’re ever audited, and don’t have documentation to backup that business expenses that they took, they could have that expense removed from their tax return and then they’ll have to pay back the taxes that they didn’t pay originally, which can definitely stick people with an unexpected bill.
[07:17]
>> So we’ve gone over a little bit about why it’s so important to track your expenses throughout the year. I’m going to show you where those expenses go into your tax return, and how tracking your expenses can save you money on taxes. So like I mentioned before, when you are self employed and you have a 1099 or independent income, you’re going to have to file some extra forms to describe that income. And the main form that you have to be familiar with is the Schedule C: Profit and Loss. So this Schedule C will have you list a couple of details about your business, mainly your business income. So first you’ll list all of the business income that you’ve had from an independent source, which is usually compensation in exchange for services. So you describe all the income from the year that you got from your business. Next you’ll describe your business expenses, so any “ordinary and necessary” expenses that you paid to keep your business alive and well during the year. You can be tracking and deduct as a business expense on your Schedule C, on your tax return, and then once you do that, you’re going to get to your profit. So let me go over how that works. So let’s say your business income for the year: your compensation in exchange for business in services, was $10,000 from your independent work. And let’s say your business expenses were $3,000. So on the Schedule C, you’re going to put in the information about your income and your expenses, and then, the reason you’re doing that is because you’re going to try to get to your business profit or loss. So the next number would be your profit, your income minus your expenses, is going to give you either your profit or your loss. And the reason it’s so important to find your income after expenses, after subtracting your expenses from your income, is because, when you pay taxes, you’re only paying taxes on your profit. So if you were to pay taxes on that $10,000, you’d be paying taxes on a much higher amount of income, than you would if you had subtracted your business expenses and just paid taxes on your profit. So that’s what this Schedule C is trying to get to for you. It’s trying to gather your income info, gather your expense info, and get you to the appropriate amount that you should be taxed on, which is your profit.
[09:19]
>> So for example, let’s say you’re an independent artist, and your business income is your revenue from selling your artwork. Your expenses are every kind of painting supply under the sun, everything that you buy to keep your art business alive and well. That means if your business income is that same $10,000, your business expenses, all of the painting supplies that you had to buy, were $3,000. That means when you go to report your income on a tax return, you’re only going to be taxed on the leftover $7,000. So that can show you exactly how much of an effect your business expenses can have on your taxable income.
[10:27]
>> So what happens if you don’t deduct expenses? So as you can imagine, the amount of money that you pay taxes on, is going to show how much you owe in taxes. So the higher your income, the more you’ll owe in taxes. So you can see, if you were to pay taxes on that $10,000, let’s assume that you have about a 30% effective tax rate. 30% is typically what I tell people to expect when it comes to tax rates. Depending on what kinds of credits and deductions you can get, it might be lower, but the average is about 30%. Let’s say you pay taxes on that $10,000 in business income. You would end up owing about $3,000 in taxes. But let’s say you kept track of your business expenses really well throughout the year, and you subtracted your business expenses from your business income to get a profit of $7,000. Well, that 30% will show you having an owed tax of about $2,100, which is a whopping $900 difference in how much you owe in taxes. And that can be a huge amount of money, especially if you’re just getting your business off the ground. I don’t know about you, but I don’t have $900 that I would be thrilled to hand over to the IRS, I would much rather pay the lower amount in taxes. As you can see, if you are tracking your business expenses really well, you have good documentation, then you can save yourself a ton of money. And you can imagine the amount that you saved in taxes just gets higher the more income you’re receiving from your business.
[12:00]
>> SO I mentioned earlier that some people will struggle to find documentation for their expenses and then deduct an expense that they don’t have proof of. So let’s say that happens. What happens when you deduct expenses without proof, and then you get audited? So firstly, no one needs to panic. It is an unlikely event that you get audited in the first place. But you always want to stay prepared, so that if you are ever audited, it is an easy, simple process, that you can prove all the deductions that you took and you can make your life a little bit easier. But let’s say you are audited, and originally you had paid taxes on that profit of $7,000 that we discussed earlier. But let’s say, as you’re getting audited, and as your expenses and documentation are being reviewed, it’s found that you don’t have the documentation to back up the expenses that you deducted on your tax return. So for anything that you can’t prove, if an auditor ever says, “Why did you deduct these $3,000?” and you can’t produce some kind of documentation that will show “Here’s what I bought, when I bought it, and why I bought it,” and if the story doesn’t make sense to them based on your documentation, then they’re not going to allow those expenses that you put on your tax return. So they’ll essentially add back what you deducted onto your income, so that you have to pay taxes on a higher amount of income than you did originally. So let’s say you originally paid taxes on $7,000 in profit. You had $3,000 in expenses, but they didn’t have any documentation, and you didn’t keep that documentation in case of an audit. They would essentially add back that $3,000 in expenses, so that your re-adjusted taxable income would be $10,000, which is what you started with in the first place. So, as you can see, that $7,000, what you paid taxes on originally, much lower than what you… than what you had earned in income. Let’s say that $3,000 is added back to your income, and what you’re paying taxes on now is $10,000, which, as we showed earlier, means you could potentially owe another $900 in taxes, that you hadn’t paid originally, which I know a couple years after the fact, can be an incredibly unexpected, hard to plan for, unfortunate expense that you would have to pay. So the moral of the story here is: anything that you deduct on your tax return, you want to make sure that you have proper documentation for it. So if you’re ever audited, you don’t get yourself into a situation like this, where you’re suddenly owing all this money in taxes that you hadn’t planned for.
[14:33]
>> So I’ve mentioned business expenses a lot, and I get a lot of questions how to determine if an expense is a business expense. How to figure out if it’s deductible, because it meant that it’s keeping your business alive and well. So what’s unfortunate here is that the IRS doesn’t exactly have a filing cabinet somewhere that lists every single thing that’s deductible for every kind of profession. So they don’t have a list that says, “Well, if you’re an independent lawyer, here’s everything that you can deduct.” So unfortunately it’s not so easy as comparing your expenses to a list of pre-approved deductions. What they do have is a rule of thumb called the “Ordinary and Necessary” rule. So for any expenses for your business that are reasonable and unavoidable, that’s what I usually tell people. Is the expense ordinary, or ordinary for your industry? Is it necessary to keep your business running? Is it, for your industry, reasonable and unavoidable? Then it’s deductible on your Schedule C, on your tax return. So basically anything that is necessary to both keep everything running smoothly, and ordinary for the industry that you’re in. It has to be both ordinary and necessary. As long as it fits both of those adjectives there, then it should be deductible as a business expense. And that’s a rule of thumb that you can take with you, for every expense that you incur that’s somewhat business related.
[15:54]
>> So I’ll test everyone’s business expense knowledge here, and you’re incurring a lot of expenses for your paint. You incurred a lot of paint expenses just to keep churning out art as you go. Is that deductible or not? Yes! It is absolutely deductible. So if you’re an artist by trade, then paint is both ordinary for your industry, and it’s necessary for you to even produce the work that you’re selling. So of course it is deductible because you need that expense to keep your business running. Let’s say your job is artist, and your expense is haircuts. Is that deductible as a business expense or not? No, it is not deductible. And oddly enough, I get this question a lot. A lot of people will write in, and ask me if haircuts are deductible, and no, they are not. Depending on your industry, it is almost universally not deductible, because it is not ordinary for your industry, it is not necessary to keep your business running. So no, haircuts would not be deductible for that job. OK, once again, let’s say your job is an artist and your expense is gas. Can you deduct your gas expenses? And this is always kind of a frustrating answer to hear when it comes to your taxes, but it depends. It is possible to deduct your gas, but a few provisions need to be in place in order for you to do that.
[17:20]
>> So the reason I say so is because whenever you’re using an asset for both personal and business reasons, you kind of have to split up the expenses that you incur for that asset between business and personal. So let’s say you have a car that you drive half the time for work, and half the time for personal reasons like errands, etc. Then you wouldn’t deduct all of your vehicle expenses, because not all of your vehicle is used for work. So there’s a little bit of math work that has to go in here. So you have the choice between deducting your vehicle expenses based on the Actual Expense Method. The way that it works is that any vehicle expenses that you incur throughout the year: gas, maintenance, depreciation, car insurance, car payments, repairs, etc, etc. Everything that you pay to keep your car running. You can take all of those expenses, track all of them throughout the year, and then at the end of the year figure out the percentage of the time that you used your car for work, and then use that percentage to figure out how much you can deduct. So let’s say you use your car to drive 10,000 miles in a year, and you calculate that 5,000 of those miles were for work. Well, that means 50% of your driving was for work, so you use that 50% number and apply it to all of your vehicle expenses. So let’s say 50% of your car was used for work, then you would deduct 50% of your gas, 50% of your maintenance expenses, car insurance, car payments, etc, and just use that 50% number down these line of expenses. So that’s one option, if you use your car for work, you have the option to track everything, and then taking the business expense, and applying it at the end of the year. But as I’m sure you can imagine, that is a lot of record keeping, bookkeeping. That is a lot of tracking you have to do every single day, think about how often in one week, even, that you spend money of your car. It could be a lot of receipts to capture, a lot of math work to do, and for a lot of people, that can just be too time-consuming, and they would rather spend that time on their business. So the other option that you have is to use the Standard Mileage Rate. So the IRS has taken all of these expenses on the left here, and found the average expense or cost per mile that an average driver will spend to keep their car running. And they roll the cost of all of those expenses into one rate per mile. The 2018 rate is 54.5 cents per business mile, and I know it doesn’t seem like a lot, but it’s actually fairly generous. You can imagine, for every single business mile that you drive, you can deduct 54.5 cents. So let’s say you drive 100 miles for a business trip. Well, $54.50 is your deduction after those 100 miles, as long as you have all the proper documentation, of course. So that can definitely add up, especially if you’re driving a lot for work. So a question I get often is, “Which method is best for me?” because, you know, ostensibly, you can have a higher deduction with one method than the other, depending on your car. So the answer I usually give is: if you have a really expensive car to maintain, if you have a gas guzzler, if you’re repairing it all the time, and you have really high costs, then it’s entirely possible that the Actual Expense Method will be the best method for you because you’ll get a higher deduction. But if you have a car that has really good gas mileage, you’re not really spending a ton to maintain it, it’s probably newer, then the Mileage Rate is probably best for you, because the 54.5 cents is really generous, and if your car costs are below the average that were used to make the 54.5 cents, then it makes a ton of sense to use the Standard Mileage Rate. And you can also save a ton of time. But it’s about having to gather a ton of receipts everyday, or every week.
[21:12]
>> OK, so as you can imagine, there are a ton of expenses that independent, 1099 workers can take. The ones on the screen here are some of the most common expenses that people will incur when they are independent workers. Anything from public transportation, getting around from one client to another, your cell phone bill, your home office, all the way to things specific to your industry. Let’s say you’re an actor, then hair spray and makeup, or hair stylist, maybe hairspray and makeup would be much more applicable to you. A lot of these on the right here are ones that I see really commonly, especially if you have a lot of travel involved for your job. So everything on the screen here is pretty common for anyone who is self-employed. If you have the Stride tax app, you can have which job you have in the app, and the app will automatically populate a list of expenses for you that are common for your industry. So for example, if you mark you are an independent stylist, it’ll automatically populate really common expenses for you, like things like hair cutting supplies, hair spray, etc.
[22:21]
>> A common question I get about that list that we just saw is how to deduct your cell phone bill, which is a great question, because, just like your car, I’m sure that everybody out there listening right now is using their cell phone for both business reasons and personal reasons. So as you can imagine, you would have to split the cost of your cell phone bill and only deduct a portion, a portion that’s used for business. So let’s say you use your cellphone for work 60% of the time in a given month, you deduct 60% of your monthly bill. And then, it is a bit tougher to find that business percentage of your cellphone bill. I think the best way to do so is to take what you’d consider an average week or a month, what you consider a typical week or a month in your business. And you can go through your calls and texts in that week or month, and figure out about what percentage of your texts and calls was for work, about what percentage of your data was used for work. Figure out when the phone is being used, and how much of the time is it being used for work. And you can take that percentage that you find from the typical week or month, and you can apply it for the rest of the year. So let’s say you have about the same amount of business every month out of year. You can just go look at your cell phone history for one month and find maybe that you use it for work 60% of the time. And you can take that 60% and apply it to the rest of the eleven months out of the year, and save yourself a bunch of research, essentially. You can save yourself a bunch of time figuring out what your percentage of your bill is deductible.
[24:02]
>> OK, so around this time, I tend to get questions like, “What if I wasn’t tracking my expenses?” And if that is the case, it is OK. Step one: please don’t panic. It’s going to be fine. There are plenty of ways to figure out what expenses you incurred throughout the year without having to forego those deductions. So step one: calm down, it’s okay. Step two: I would definitely recommend going through your bank statements or your credit card statements. You can go through your spending history online, and you can pick out which of those expenses that you incurred were for work. So for example, let’s say you’re an artist, and you always buy your paint supplies from the same paint supply store. If you’re going through your bank or credit card statements, and you find expenses at that particular store, with the vendor name that you recognize, you can bet that all of those expenses were for work. So you can go through and pick out any expenses with that vendor name, and tally those us for your own records. And you can do the same for your credit card statement as well. Step three, going through your appointment book can be a surprisingly helpful way to figure out what you were spending and when. I think that the hardest part about going through an entire year’s worth of records, and finding your expenses is literally just remembering where you were at what time. And that can help tell you if you were buying something for your business or not. So for example, let’s say that you’re going through your appointment book, and you know if you’re a rideshare driver, you always mark in your calendar the number of hours that you are going to be driving. Well, you can compare those hours that you were driving to something like your bank history or your credit card history, and see if you were buying something during that time, it can help jog your memory on what you were buying, and if it was for your business. This works especially well for people who do client-based work. If you were not tracking your mileage on your way to a client site, then going through your appointment book, seeing where, at what time, and calculating the mileage that you incurred can be a good way to go back through your records, even if you don’t have a ton of documentation to help you through it. And four: I would always take notes on what you’ve purchased. So your goal should be, “OK, if I’m audited, I want my documentation to tell a story that the IRS will believe, that will cause no doubt in their mind that the expenses that I deducted on my taxes were legitimate.” So you have to give as much information as you can just to make sure you’re covering your tracks. So whenever you’re going back through your documentation, I would always take notes on what you’ve purchased. So if you go back through your bank statements, see that you were at a paint supply store, it’s good to take a screenshot or print out that bank statement, and just take a few notes on, you know: I bought these paint supplies at the paint supply store for this work, and just having as many details as you can is always going to be helpful to future you. [laughter] Because if you’re… you can be audited for any tax year in the past three years, they can often go back as far as three years during an audit. You can imagine that three years ago, you probably don’t remember what you were purchasing and why you were purchasing it. But if you take a good amount of notes, then it can help show in more detail what you were buying for your business.
[27:23]
>> And if you didn’t track deductions in a given year, and you have to go through that awful process that we just described, and you definitely don’t want to do it again, I would definitely recommend tracking your deductions in 2018 really responsibly. The best way to do that is to get some kind of expense tracker, like Stride Tax, that can help you track both your mileage and your expenses. Stride Tax users tend to record on average about $200 in deductions per week. And if you’re working every single week, that $200 really adds up. When you download the app and create an account, you are part of the Stride community, which means you get a couple of perks just for having Stride Tax. So one would be free tax support. You can write in to the support team for Stride Tax and you can have direct access to a tax preparer like myself. And we’d be happy to answer any questions that you have about expenses, about what’s deductible, about how to record expenses on a tax return. You know, anything or any self-employment tax question that you have in mind. And secondly, we have a partnership with H&R Block, so if you’re recording your expenses throughout the year with Stride Tax, you can automatically import all of those expenses into your tax return if you file with H&R Block, which can save you a ton of time when filing and kind of erase the headache of filling out your Schedule C for you. And we’ll also be able to give you a discount on H&R block filing, come income tax time. Once again, to get the app, you can text the word “TAX” to 415-930-9109, excuse me. And you’ll receive a link to download the app directly from that text.
[29:05]
>> OK. [laughter] Quarterly taxes, this is a question… I get a lot of questions about quarterly taxes around this time of year, because as y’all know, there is a quarterly tax deadline coming up shortly. There are four quarterly tax deadlines throughout the year. So I’m going to go through: what are quarterly taxes and how in the world do you prepare for them? So for background, the US is a pay-as-you-go tax system. So what that means is you have to pay your fair share of taxes periodically throughout the year, instead of actually just once a year like people think. So if you are a W2 employee with a traditional employer, any time taxes are withheld from your paycheck, it’s essentially because your employer is remitting those taxes on your behalf to the IRS. So you know, you don't’ really have to fool with estimated or quarterly payments, because it’s being done for you by your employer. But as we already discussed, if you are self-employed, there is no employer withholding taxes from your paycheck. You are now responsible for paying your fair share periodically throughout the year. So what that usually involves is: 1. You would estimate your income for the entire year, with 1040-ES, which you can see on the right here. You’d estimate your income for the year, use that income number to figure out how much you’re going to owe in taxes for the year, and if you’re going to owe more than $1,000 on your taxes, then you would pay 25% of your estimated tax every three months. And you do so by sending in an estimated payment to the IRS each quarter. So basically, you’re going to calculate what you’re going to earn, calculate what you’re going to owe, and if what you owe is above those $1,000, then you pay a fourth of it every quarter. I realize that it’s a little bit easier said than done, so we’re going to go over exactly how to do all of these four steps that I have on the screen here.
[30:36]
>> So step one: estimate your income. So you’re going to estimate your taxable income. And that can be tricky because there are a number of things that go into finding your taxable income. You have to calculate all of your income sources for the entire year, calculate all of your deductions, factor in a couple other details that I’m sure you’re familiar with when you file your taxes. So there are a lot of numbers that go into finding this income number that unfortunately aren’t just what you get in your bank account. So I would recommend using a Withholding Calculator, like this one from the IRS website on the screen here. I would recommend going to https://apps.irs.gov/app/withholdingcalculator. If you go to that website, then you can take this really brief quiz on the right here on the screen, where they ask you a couple of details about your 2018 tax situation. And it will help you spit out what your taxable income will be. So it will calculate: what’s your income, what’s your deductions, what’s your filing status. It’ll calculate what your standard deduction would be and how many personal exemptions you would get, and it will help you figure out what is your taxable income for the year. So you can estimate your income with any kind of withholding calculator like this online. You can also do it with the form 1040-ES if you want, it’s just a handwritten worksheet that you can fill out about your income.
[32:17]
>> So two: estimate your tax owed. So this can be a little tricky, especially for people that have both a W2 job and an independent contractor job, if you have several sources of income, some of which have taxes withheld, and some of which don’t. So I’m going to show you what I mean by that. So your tax based on your total income, including from a W2 job as well as your 1099 income, as well as any other form of taxable income you’re receiving. So if you have taxes withheld from your W2 paycheck, then some of the taxes are already taken care for you, whereas, with your self-employment income, they are not. So you would have to estimate what you owe after the taxes that are owed for you, and budget your quarterly tax payments based on that. So here’s what I mean by that. Let’s say that you’re going to estimate that you’re going to have $35,000 in W2 income for the year, and you estimate that you’re going to have $15,000 in 1099 income for the year, which is going to give you $50K for the year, that you’re going to estimate that you’re going to get for the year. So some of that income is going to attribute to you owing estimated taxes, or quarterly taxes, and some of it’s not. So what I mean by that is if you owe a total of $5,000 based on that total income of $50,000, but $3,000 was withheld from your W2 paycheck. That $35,000 in income from your W2 that you see up there, let’s say that $3,000 in taxes were already withheld from your income. That means that you would actually only owe, in estimated payments, $2,000. Because of the $5,000 that you owe in general on your total taxable income, $3,000 is already withheld for you, and remitted to the IRS for you. So that leftover tax owed, that’s what you’re going to be calculating your quarterly payments on, not the entirety of the $5,000 that you owe on all of your income. That $2,000 is just the amount of your tax owed that isn’t already taken care of for you.
[34:22]
>> So step three: estimate your quarterly taxes. So we already figured out that your estimated tax owed is going to be $2,000, because that is the tax owed that isn’t already taken care of for you by withholding in your paycheck. So $2,000 is above the $1,000 limit, and if your tax owed is above that $1,000 limit, then you do need to pay estimated or quarterly payments throughout the year. So we take that estimated tax owed of tax owed of $2,000, and we divide it by four, and figure out that each estimated or quarterly payment that you need to make throughout the year is $500. So you need to be paying $500 four times per year, to make up for the estimated tax owed that we have figured for you.
[35:05]
>> So how do we do that? We send your estimated payments to the IRS each quarter. The estimated payment that we’ve calculated, which is $500. You would go the website on the screen here, https://www.irs.gov/payments and it’s really easy. You can just click on the “Pay My Tax Bill” button, and you can send in that payment of $500. Every year, they’ll ask you to fill out a little bit of information about yourself, like your social security number, and then they’ll attribute that $500 to your owed tax for you. So when you go to file your taxes for the next year, your debt is essentially already settled, meaning you won’t have to pay anything when you file.
[35:34]
>> So some important dates for you remember. The quarterly tax deadlines are: April 17th, June 15th, September 17th, and January 15th of the following year. So for all of these dates this year, you would have to send in your estimated tax payments, before each of these deadlines, so you can avoid penalties and such. The nearest one coming up is June 15th, so if you haven’t already started gathering up your documentation, I would. I would go ahead and get it out the way, so you’re not frantically trying to figure out what your expenses were on June 15th.
[36:20]
>> OK, so I’m going to go through some common questions that I tend to get about taxes in general. There seems to be a few myths out there on the water supply about taxes, a few myths I’d like to bust. So I’m going to go over some of the most common questions that I get.
[36:36]
>> So number 1: If I missed the tax filing deadline, do I have to wait until next year to file? No, absolutely not. You can file taxes really whenever you want. You will incur penalties if you don’t pay it by the deadline, but the deadline for tax filing doesn’t work the way other deadlines work. That’s the day when your penalties will start accruing, that is not the final day in the year when you can file a tax return. You can actually file a tax return on any day of the year if you need to. So if you’re not going to make the deadline, you can still file the day after, or even six months after the day if you want. I do want to let everyone know that late payment and late filing penalties accrue over time, so even if you miss a deadline, it’s not a situation of, if you’re late, you’re already late, so you might as well take your time. It is the situation of, everyday and every week that you are late, your penalties will keep accruing over time. So even if you’re late, it is still advisable to get your tax return and your tax payments in as soon as possible. But if you have… if in April you miss the deadline for filing your taxes, it’s true that you’re a couple months late, but it’s not so late that you’re going to incur some ridiculously high penalty. It’s actually very possible that you can have a low penalty or even still get a refund. So I would definitely recommend, if you haven’t already, then get your tax return in as soon as possible.
[38:01]
>> Can I pay my taxes with a credit card? Yes, this is a little known fact, but you absolutely can. Most credit card providers will charge a service fee of about $4 to do so, but you can pay down your tax liability with a credit card. So if it’s getting near the tax payment deadline, and you’re going to have getting the funds together to make your payment, it is possible to go ahead and make a payment on your credit card, so you don’t miss the deadline and incur any penalties. And then you can manage your own interest rates and payments on your own with your credit card company, as opposed to just incurring penalties with the IRS.
[38:34]
>> I haven’t filed in years, can I still file? I get this question a lot from people who have been self-employed for a long time. Yes, you absolutely can, and please do! Like I said before [laughter], the longer you wait, the higher your penalties would be. So even if it’s been years, it is still advantageous to file as soon as possible. And what most people don’t know, is even if you are a couple years late in filing your tax return, it is possible that you will get a refund anyway. So if you are owed a refund in a specific tax year, then if you incur penalties, then those penalties will just eat into your refund. So even if you were six months late, and you were owed a substantial refund, you can file six months late and still get the rest of that refund that wasn’t eaten up by penalties. You will forfeit that potential refund if you are over 3 years late, but let’s say you haven’t paid or filed your taxes in 2016, if you were owed a refund and that refund was large enough, you could file today and still get what’s left of it. I do also want to note that late filing penalties will max out at 25% of your owed tax. So even if it’s been many years since you missed a tax return deadline, your penalties weren’t just endlessly accruing every month out of those several years. It’ll max out when you hit 25% of your owed tax. So don’t worry, [laughter] you’re not just going to keep accruing penalties for the rest of your life, you know. It’ll max out.
[40:11]
>> So once again, we’ve gone over a lot of the reasons why it’s so important to keep track of your expenses and to have diligent record keeping throughout the year. So in order to make sure that you’re keeping on top of all of your documentation and your business expenses, I would recommend downloading the Stride Tax app for either iPhone or Android. You can either text the word “TAX” to 415-930-9109, and you’ll get a text with a link to download the app, or you can go directly to the Google Play Store or the Apple App Store, and download Stride Tax straight from there.
[40:49]
>> And once you’ve done so, I’m sure many of you have a lot of self-employed friends in the same industry as you. If you want to earn $5, you can share the app with your friends, and you’ll get a $5 Amazon gift card for every person that you refer that downloads the app and records an expense in your account. So to do so, you would go to the little person icon in the upper lefthand corner into your profile, you would click on the “Earn $5 button,” and that will take you to a place where you can copy and paste your unique referral link to send to your friends. And every time they sign up with that link, and record an expense, then you’ll automatically be put on a list to receive a $5 Amazon gift card at the end of the month.
[41:34]
>> So we’ve covered a lot of information today [laughter]. I think some of the most important highlights that I want everybody to remember. Number one: know what’s tax deductible for your industry. Familiarize yourself as much as possible, Google it, ask your friends, ask your tax preparer or your accountant friends. Make sure you know exactly what’s tax deductible for your industry, because it’ll just start to become automatic. When you make a purchase for your business, it’ll automatically ring a bell, you’ll know it’s tax deductible, you’ll be sure to keep your receipt and make sure you have good records throughout the year. Number two: track your deductible mileage and expenses - it’ll help you pay less in taxes. Remember that $900 in taxes that we saved, our mythical artist [laughter] a few slides back? Make sure that you’re tracking all of your expenses throughout the year to make sure you’re not overpaying in taxes on an income that’s artificially too high. Number three: keep all your receipts and documentation for three years. Like I mentioned earlier, the IRS can audit you, and they usually go back about three years. So that will mean that when you keep your records, you’ll want to keep them around for at least 3 years, to make sure that you’re covered for any audit periods that you may have to deal with.
[42:46]
>> You can rewatch this webinar by going to the link on the screen. If you’ve registered for the webinar, you will get an email once we finish today with this URL so you can go back and replay it if you want to. You’re welcome to share it with your friends as well. https://stride.easywebinar.live/replay-Q2taxes You can go to this URL and then rewatch everything that we’ve talked about today.
[43:12]
>> You can also get a lot of this information on the Stride blog. We have a lot of articles that go into all of these topics in depth, and you can read a lot more about the Actual Expense Method versus Standard Deduction, or Standard Mileage deduction. You can read all of our expense and deduction guides for each industry that we support, and you can see a lot of the tax topics that we’ve gone over today.
[43:38]
>> While you’re on the website, you’ll notice that Stride provides a full suite of benefits for self-employed professionals. All of the benefits that you see on the screen here are available for purchase on the Stride website: health, dental, vision, accident and life insurance, and then of course, tax support. When you download the app, you can get direct access to tax preparers like myself, who can answer all of your tax questions. And fun fact, all of the insurance options that you see on your screen here, it is possible to deduct all of those insurance options on your tax return. So if you’re self-employed, it is definitely advantageous to secure yourself with all of these types of insurances, and then you’re going to get a tax benefit for them when you file your taxes.
[44:21]
>> Thank you everyone for joining us today. Please feel free to download the app and then reach out to me directly via the “Help” button on your account. Happy to answer any additional tax questions that everybody has, and have a good one.
[Video ends]
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