Real Questions from our Reddit Ask Me Anything – Freelance Income
Editor’s Note: In mid-January, we hosted a Reddit Ask Me Anything (AMA) with Andy, a director in The Tax Institute at H&R Block. Reddit is a community-based website with over a million topic forums and AMAs are places for people to ask anything to an expert on a topic. Andy answered some of the Internet’s most burning tax questions, ranging from tax reform to student loans, marriage, freelance work, and more.
Do you have a freelance gig or making money on the side? Check out a few of his answers to freelance, contractor and side income below.
Tax Reform Impact on Freelancers
Q: What are the biggest changes concerning tax reform for freelancers?
A: A big change freelancers need to look out for is the new 20% deduction rule for qualified business income. Even if you’re a solo freelancer, this big change will impact most small businesses. This new deduction can have a very positive impact on your bottom line, so ensure you’re claiming it if you’re eligible.
Business vs. Freelance Income
Q: I recently started walking dogs through the Wag app, which I have to save 30% of my income to pay taxes. Would I pay less in taxes if I registered my own business?
A: You’ll probably be taxed the same even if you do register your business, unless you form an actual corporation. If you’re looking for names for a dog walking corporation, I’m happy to help with that too.
Determining Your Filing Status
Q: Hi there! I have a small side hustle that grosses $20k a year, but I only net $10k – the rest is inventory cost, postage, etc. I got a 1099K last week from Paypal. For tax purposes, should I treat this as a business or hobby? And how do I deduct the expenses from my gross?
A: Looks like you’re stacking a decent amount of paper with that side hustle. Most likely you’d need to treat what you earn as business income. Even though it’s your side hustle, you’re making enough to deduct expenses just like any other small business would. If you decide it’s more of a hobby instead of a business, remember that tax reform eliminated the ability to deduct the expenses associated with that hobby.
Q: Is there a difference between someone who’s only an independent contractor and someone who is a full-time employee but does some independent contractor on the side, adding roughly 5k to their income?
A: Even though you have a full time W-2 gig, the income from your side hustle will be taxed the same way as a person who is a 100% independent contractor. The income is reported separately from your full-time employment and is subject to self-employment tax.
Getting the Documentation Together
Q: I ordered 1099s from the IRS about one week ago. Will I get the forms before the deadline? Also, what can I do if I don’t receive them?
A: If you’ve already ordered those forms, the IRS should have them to you within 10 days. Even if you haven’t ordered them, you should be fine to make the 2/28/19 filing deadline. Sooner rather than later is best, timelines may get a little tight if you’re paying out contract workers. If you are paying contract workers, the 1099-MISCs would be due 1/31/19. If the forms don’t get there in time, use software to e-file or have a tax pro file them for you.
Forms to Use
Q: I’m an exotic dancer who pays a cover fee of $30-$40 per shift to work… what type of form should I be filing? My club claims I’m an independent contractor, but they haven’t paid me anything directly ever, as I make 100% of my income in cash tips from customers.
A: You should probably file as a self-employed contractor. You can use a Schedule C to report your cash and tips as business income as an independent contractor. Keep track of those fees you’re paying to the club, they could be a deductible business expense too. Uniform or other props, like glitter, may be deductible.
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