Merry Christmas and Taxes

A Merry Christmas to all and a Happy New Year. Christmas is today, and Tax day is only 113 days away. Now is the time to get everything in order for Tax day. Here's a few suggestions to make it easier. In particular, if you have a side gig or are self-employed.

Gather up all your Income and business expenses. The IRS wants to see all your income, not just income from clients that sent you 1099's. The IRS wants all W2's, 1099's, and you should keep all business receipts on hand. You should be receiving your W2's or 1099's by January 31, 2020

Your social security, medicare and tax liability are calculated on Net Income not Gross Income.

Net Income. This is income from all sources minus your expenses, plus what you paid yourself. Here's an an example

Revenue from all sources $50,000

Expenses (not including the amount you paid your self) $10,000

Net Income $40,000

You would pay your social security tax on the $40,000 Net Income. This is Social Security and Medicare tax. Because you are the employer and the employee, the total rate is 15.3%. Out of the $40,000 you would pay $6,120.

You use IRS form SE to calculated your Social Security and Medicare taxes. Here is the link, IRS FORM SE

Make sure you take all the tax deductions available to you. Car expense, office expense, possible home office equipment and supplies expense, travel expense, portion of your travel, business meals (at 50% of the expense), education, certification, some continuing education expenses, depreciation. If you are a business owner, you may be able to take advantage of Section 179 deductions, and 199 deductions where you can take 20% decrease in the income amount calculated for taxes if you are certain types of businesses.

The IRS wants you to calculate your social security, medicare,and your income tax quarterly and make the associated payments to them. The dates for 2020 to pay the IRS for each prior quarter are as follows:

• January 15, 2020 - Quarter Ending December 31, 2019

• April 15, 2020 - Quarter Ending March 31, 2020

• July 15, 2020 - Quarter Ending June 30, 2020

• October 15, 2020 - Quarter Ending September 30, 2020

• January 15, 2021 - Quarter Ending December 31, 2020

Here's the top ten self employment deductions you can take in no particular order.

1. Advertising and marketing - Flyers, web advertising, business cards, postcards, print ads, etc.

2. Website - Domain fees, design and build cost, and website maintenance

3. Software - Microsoft office, adobe, Carbonite, OneDrive, Google Drive, Azure, etc.

4. Mileage and Gas - Remember you can take actual or standard mileage. You'll need to log your actual expenses or mileage.

5. Incorporation fees, yearly maintenance, legal costs, etc.

6. Professional development - Continuing professional education, dues, membership fees.

7. Travel and hotel costs - Business meals are deducted at 50% of the cost.

8. Home office - Must be set aside for home office use only. Can take actual costs or simplified deduction based on square footage.

9. Utilities - Portion of utilities directly related to the home office.

10. Unpaid Invoices - deduct unpaid or invoices that will never be paid.

Merry Christmas, Happy Holidays and Happy New Year.