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(Art Credit: Karen Fischer) It Can Save You Significant Tax Dollars If you are holding bitcoin in your virtual currency portfolio, you need to be aware of the HIFO (highest in, first out) tax loophole which could save you significant amounts of cash by reducing your tax burden on cryptocurrency capital gains. Here Is How HIFO Works for Bitcoin and Other Virtual Currency Investments: As you may be aware, when you sell cryptocurrency, you can select the specific unit you are selling. In this scenario, the strategy is to use the value of the most expensive bitcoin you must determine your tax obligation for any capital gains you have. This higher cost basis for your bitcoin means that you will pay less tax on your sale, given that capital gains are equal to your sales price minus the cost basis. Even with the current decrease in the value of bitcoin, this HIFO tax hack will save you from having to pay more capital gains taxes than necessary. The key point is that the IRS treats cryptocurrencies like property, so each time you spend, exchange, or sell tokens, you are creating a taxable event. The difference between how much you paid for your crypto (the cost basis) and the market value at the time you sell it is what any capital gains tax is based on. Use the HIFO Rule to Reduce Cryptocurrency Capital Gains HIFO can significantly reduce your cryptocurrency capital gains tax obligation when you choose the highest value specific unit of bitcoin or other cryptocurrency you are selling to calculate your tax obligation. Obviously, a higher cost basis translates into less tax that you must pay on your sale of bitcoin or other virtual currency. To take advantage of this loophole legitimately, you need to keep track of all your cryptocurrency sales and purchases in detail including the date and transactional specifics as well as the cost basis plus all of your calculations in case they need to be substantiated to the IRS. Why Would You Want to Use HIFO and Not FIFO for Cryptocurrency Accounting? In contrast to HIFO, FIFO (First In First Out) accounting rules mean that when you sell your tokens, you’re selling the earliest purchased coin, which may not be the highest priced one. In fact, if this is the case and you bought crypto before the sharp increases in price we see now, your spread between the lower purchase price and any potential gains by selling is much larger…which also magnifies the taxes you need to pay on it. The IRS classifies digital currencies as property, therefore losses on crypto holdings are treated differently than losses on stocks and mutual funds. For example, unlike stocks, you can sell your bitcoin and buy it right back. In the same scenario with stocks, you would need to wait 30 days for the buyback. Clearly, the opportunity exists for investors to sell at a loss and buy back Bitcoin at a lower price, lowering their tax bill now or in the future. How to Take Advantage of HIFO Right Now If you purchased bitcoin or other virtual currencies when the market was low and you can now sell at a significantly higher price, if you act quickly and buy while the price remains low, you will not only reduce your capital gains exposure but also be able to purchase more currency at a lower cost with the expectation that it may increase in value again. Be Forewarned About Forward Looking Statements Please be aware that HIFO is one suggestion for lowering your tax bill and you should consider your own risk tolerance and financial situation carefully. There are no guarantees on the future performance of any investment vehicle and crypto is an even more nebulous entity for investors and analysts to predict. While cryptocurrency (crypto) investors were expected to meet the same reporting standards when it came to paying tax and reporting profits and losses to the Internal Revenue Service, the passage of the Infrastructure Investments and Jobs Act (IIJA) shows that the IRS is serious about enforcing, strengthening, and standardizing these requirements. This means that whenever you deal with crypto, you need to track and record the activities carefully. You can find the reporting requirements stated in section 80603 of the Infrastructure Investments and Jobs Act (IIJA). via Freelancers Union Blog https://blog.freelancersunion.org/2022/03/31/cashing-in-on-crypto/
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(Art Credit: Sisi Recht) Taking time off work as a new parent can be daunting no matter what job you have; but as a freelancer, you might feel totally baffled as to how to begin with planning a parental leave. There’s no human resources team to guide you, and no set plan to follow. But the good news is that taking maternity and paternity leave as a freelancer is possible, especially if you plan ahead. Here’s where to start: Assess your budgetSit down with your partner and look at your monthly budget. How much do you need to make each month to pay your bills? How much of that equation are you, personally, responsible for? Multiply that income goal by the number of months you plan to take off, then write that big number down somewhere; it will guide your financial planning. Do you have that amount in savings already? If not, consider how you might earn a bit extra in your freelance business before your baby comes. If you have 9 months, break the number down by nine and plan to bring in a few hundred extra dollars each month. Tuck that extra amount into a savings account or a bucket each month; even if you don’t use it all during your period of parental leave, you’ll be glad to have it in your reserves. Check for state benefitsThese states currently have paid family leave policies:
Look at your state’s policy, as they vary widely; in some, the birthing parent can get up to 16 weeks of paid leave once per year, often with up to $1,000 per week in payments. This also applies to a non-birthing parent, who can often get up to 6 weeks of paid leave from the state, and sometimes up to 12. The process of opting into your state’s parental leave policy varies by state. You’ll likely need to enroll in the program online. You’ll typically pay a small percentage of your overall revenue, due quarterly, into a “pot” to be accessed by anyone who has a medical issue or needs to provide caregiving. Often, and especially if the program is new, that amount can be paid retroactively. You’ll usually need to agree to pay into the program for several years as well. Call the number provided on your state’s website to check in about eligibility and application processes before your baby arrives. Investigate short-term disability plansIf your state doesn’t provide paid leave, a lesser-known funding option for the birthing parent involves investing in a short-term disability plan. These policies sometimes come through work, but you can also apply for them as an independent contractor. A few notes: If you want to use the plan to cover leave, you must sign up before you’re pregnant; pregnancy counts as a pre-existing condition. Short-term disability plans also don’t cover the non-birthing parent, and some plans require you to pay into them for three to six months before you become pregnant, which means you’ll need to think way ahead if you want to use this option. Talk to your clientsOnce you’ve determined how long you plan to stay home with your child, let your clients know when you’ll be stepping away. Make plans with them to either get work done early or to hire a replacement while you’re away. If you’re on a retainer, consider taking on a month or two of extra work in the second or third trimester, to add to your savings and give your client a back-flow of work to draw upon while you’re gone. Communicate with your contacts early and often, and be as helpful as possible. If you’re not on a retainer with your client, ask if you can get in touch when you return from leave. Freelancing is a momentum game, and losing momentum during leave can be tough, so any guaranteed work you can secure upon your return will be welcome. Expect that it will take a month or two to get back up to full capacity, too. And if you have the bandwidth, plan to check in with your regular clients about a month before you return to work. Make a back-up plan and a back-up-back-up planBabies are unique, and you don’t know what yours will be like until they show up. Some children sleep all the time, leaving lots of room for parents to work. Others are fussy and don’t leave parents with much time at all. You won’t know what you’re dealing with (or how you’ll feel!) until your baby arrives. Many freelancers recommend planning for a full leave after your first baby — at least 12 weeks. Be flexible, have a back-up plan, and hold your best-case scenarios loosely. You won’t know how you feel until it happens to you! via Freelancers Union Blog https://blog.freelancersunion.org/2022/03/30/how-to-take-parental-leave-as-a-freelancer-2/
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(Art Credit: Pedro Gomes) This article was first published by the IRS and has been reproduced with permission. Subscribe to IRS tax tips here. Taxpayers should file their tax return by the deadline even if they cannot pay their full tax bill. Taxpayers who owe tax and don't file on time may be charged a failure-to-file penalty. This penalty is usually five percent of the tax owed for each month, or part of a month that the tax return is late, up to 25%. If an individual taxpayer owes taxes, but can't pay in full by April 18, 2022, deadline, they should: File their tax return or request an extension of time to file by the April 18 deadline.
To get an extension to file, taxpayers must do one of the following:Pay as much as possible by the April 18 due date.Set up a payment plan as soon as possible.Interest is based on the amount of tax owed and for each day it's not paid in full. Interest rates are determined every three months and can vary, based on the type of tax; for example, individual or business-tax liabilities. More information is available on the Interest on Underpayments and Overpayments page of IRS.gov. via Freelancers Union Blog https://blog.freelancersunion.org/2022/03/28/taxpayers-should-file-their-tax-return-on-time/
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(Art Credit: Sisi Recht) Working as a freelancer offers a lot of advantages such as the freedom to choose where and when you work. However, there is one major drawback – unstable income and uncertainty of what tomorrow brings. Insufficient capital or cash flow is considered as one of the main challenges small business owners face, accounting for 23% of cases of business failure. As a freelancer, you don’t get paid a fixed amount of money each month and you have to make sure that you are booked with projects a few weeks or even months ahead. Relying only on a couple of clients can endanger your cash flow at some point. What if they suspend projects simultaneously or run out of cash? If you want to gain a bit more stability and maintain your cash flow, you should consider developing multiple streams of income. Diversifying your income will help you stop worrying about your finances and give you a chance to enjoy the benefits of freelancing to the fullest. So what options do you have? Passive vs. active income streamsMost freelancers focus on generating active income – taking up more client work and trading their time for money. Active income is the easiest stream to establish when you just start. However, in the long run, you won’t be able to stretch your day beyond 24 hours. As your time is limited, to grow your freelance business, you will also have to diversify your active income streams with passive income. Generating passive income doesn’t require your time and effort once this revenue stream starts to work. However, you usually have to dedicate a lot of time in the beginning and establish the right habits to get it to work. So what projects could contribute to building passive income? Think of online courses, paid community access, selling books, and affiliate marketing. For example, Jon Loomer, a Facebook Advertising expert, promotes his online training on Facebook conversion events by selling two products – lifetime access to his course and monthly recurring access. If you decide to create a course about becoming a successful freelancer, it will take time to prepare materials, record them in either audio or video form, edit, and, most importantly, promote them. However, once people start buying your courses, you don’t have to do much. Ideas for income streamsLet’s review some of the most popular income streams that you can start developing for your freelance business. Pick two or three the most suitable and the easiest to develop. Client workClient work is one of the active income streams. Getting more work to increase your earnings is not always possible. If you no longer have the capacity to take up more client work, think of the ways how you can charge more for the work you do for clients. Sometimes, raising your rates means rethinking your target persona. If you have focussed on working with startups that haven’t reached the break-even point with their products, you might explore other market segments and target your services at companies that are now at the growth strategy and have bigger budgets for services that you offer. Once you know what client can be more profitable for your business, you can draft a strategy to attract such clients through various channels. Implementing this strategy can also mean tweaking your website copy, so it communicates the right value proposition for your new audience. If the kind of consulting or client work you do is highly specialized – let's say, you advise medical practices on new equipment purchases or assist law firms on new acquisitions – your prospective client may be reluctant to hire you because the expense of new medical equipment or buying another firm might be too expensive, what can you do to get that business? One tactic might be to point them toward revenue-based finance options. These are financiers who invest in projects like this and are repaid from future revenue. By helping your client to finance this way, you make yourself indispensable to that client while securing the client’s project work for yourself. SubcontractingSubcontracting is one of the ways to get started with passive income. If you are an IT consultant and advise companies with implementing new technologies, you shouldn’t necessarily implement code all on your own. Instead of doing more client work, you can source a few good developers who can take up projects you wouldn’t otherwise implement by yourself. You can then charge your client a certain amount of money and pay subcontractors once the work is done. Preparing good estimates and setting up reasonable margins to earn on each project is the key to your success with this income stream. Finding good specialists is not always easy. That’s why you have to start with establishing a network of tried-and-tested professionals and be ready for the situations when your client suddenly requests a project. Online coursesOnline courses are one of the most attractive ideas for freelance experts who like to share their knowledge with others, have the skills to record and post-produce visual materials, and have a good understanding of how course platforms work. You can create a course and publish it on popular course platforms such as Udemy. However, if you choose this option instead of publishing on your website, you will face fierce competition from other professionals who offer similar courses. This factor can also make you set a lower price on your course than you plan. To check competition in your niche on popular course websites, head over to Udemy and choose your category. For example, with a quick search for online marketing courses, I have ended up with hundreds of options on Udemy. If you want to create premium courses and sell them online at a higher rate, setting a course on your website is always a better idea. This option is perfect if you want to build your brand and are ready to invest in creating a community of fans who will buy your course. To promote a course, you have to build a strategy on distribution channels such as Google and Facebook ads, podcasts, YouTube channels, and SEO optimization to get more people to land on your course landing page and generate more sales. ConsultingAmong your potential clients' list, some companies don’t want to outsource work to external freelancers, but instead, want to keep the knowledge in-house. They also have people and other resources to perform work within their team. However, young teams often lack the know-how. By offering consulting services, you can charge much more than what you would do for client projects. You would also spend less time on consulting work than you are doing on client work. By engaging in consulting, you can continue working with clients who you would otherwise lose as they wouldn’t plan to work with external contractors. Affiliate marketingAs a freelancer, you like using certain tools that you can also recommend to clients. That’s an opportunity to develop affiliate marketing into another income stream. When thinking of affiliate marketing, you probably believe that you should have a blog where you could hyperlink promoted products. Surprisingly, you can engage in an affiliate marketing strategy even if you don’t write a blog. You can promote a tool during your call with a client and then send a link by which your client can sign up for it. Some software solutions such as Unbounce have affiliate programs that incentivize both an affiliate and a buyer. They offer hefty commissions to their affiliates as well as a discount to referred users. For your client who is looking for a tool like this, it’s worth using an affiliate link, because they can save money. It breaks all objections about using affiliate links! Selling a bookPublishing a book shouldn’t necessarily be an expensive option. With self-publishing, you can cut the costs of publishing a book, maintain full rights to it, and keep all revenue coming from sales. If investing in printing a book is not an option for you, you can consider writing an ebook to sell in a digital form. No matter if you choose to go with a digital or traditional form of publishing, you should spend quite a lot of time on writing a book. Also, similar to online courses, to sell a book, you should have a loyal community that would want to buy it. It means you would have to work out a strategy for the distribution of your promotional content. Here are some of the ideas for promoting a book:
Wrapping upThere are a lot of options you can choose from when it comes to developing additional income streams. Make sure you don’t overstretch yourself at work by focusing solely on active income streams such as client work or coaching. Consider balancing active revenue streams with passive ones, so you can earn money even when you don’t work. It’s up to you what streams you want to start building – your preferences can also be affected by the niche in which you operate. Make sure you explore one revenue stream at a time. via Freelancers Union Blog https://blog.freelancersunion.org/2022/03/24/the-freelancers-guide-to-creating-multiple-income-streams/
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(Art Credit: Kathryn Sheldon) Freelancing is growing in popularity, largely in part to the amount of freedom it offers. As a freelancer, you have the flexibility to pick and choose which projects to work on, when to work, what to charge, and of course, the convenience of working from home. While freelancing certainly has its pros, finances can often prove a challenge for new and seasoned freelancers. Unlike a traditional 9-5 job, freelancers do not receive a steady paycheck or employer paid benefits. The somewhat unpredictable nature of freelancing requires you to manage your money very attentively. Whether you’ve been making money on your own for years or are just getting started, here are a few tips on how to manage your finances as a freelancer. Separate Personal and Business Finances Separating your freelancing finances from your personal finances is key. By having separate accounts, you can more easily track your income and expenses, as well as have cleaner records to clearly showcase what business expenses you can deduct on your tax return. Since freelancers do not have a regular income and do not pay their taxes in the traditional sense, it is imperative to keep detailed records of your finances. Separating your business finances from your personal finances is the first step to ensuring that you are keeping as good of records as possible. Create and Follow a Budget Due to inconsistencies in income, creating and following a budget can be a challenge for freelancers, but it is not impossible. Since no two months result in the same income for a freelancer, you will have to base your idea of earnings on an average monthly income. Keep in mind, one bad month doesn’t define your business, but either does one successful month. When you calculate your average monthly income, you can then have a better idea of what to budget. Remember when budgeting to keep a record of all business receipts and to track all business expenses. It is up to you as a freelancer to estimate your taxes every quarter. To stick to your financial plan it is essential to diligently track your income and expenses throughout the year. Pay Yourself First This advice seems to be a consensus among financial experts – pay yourself first. Making sure you get a cut of your earnings might seem logical, but many freelancers find paying themselves to be particularly challenging. As a business owner, paying everyone before you pay yourself may seem like the most responsible thing to do. But refusing to prioritize payment to yourself can also bring serious personal financial consequences. In addition, paying yourself first will help simplify your budget and reduce stress related to your finances. Have Money Set Aside in an Emergency Fund As a freelancer, your income is subject to regular ebbs and flows, making an emergency fund even more of a priority. An emergency fund can be used for any sudden, unexpected expenses, such as medical bills or car repairs. Because your income as a freelancer is not completely predictable, an emergency fund can protect you and your finances. Ideally, you should have enough saved to cover six months of expenses regardless of your financial situation. Save for Retirement Since freelancers are working for themselves, it may be tempting to forgo enrolling in a retirement plan. But saving for retirement is necessary for everyone, and luckily, freelancers have plenty of options. For instance, you can contribute to an individual retirement account (IRA) or solo 401(k). Continue to Pay Off Debt In a way, freelancers face more uncertainty about their future income. Because they do not always know what the next month’s cash flow income will look like, some freelancers hesitate to use their income to pay off debt. Instead, they like to save their money where it is easily accessible in the event that their business hits a rough financial patch. If you have personal debt, do not forget to set debt repayment goals. Though you may feel as though you have more pressing priorities as a freelancer and business owner, it is vital to continue paying down your debt. Paying off debt will decrease your interest payments, help raise your credit score, and allow you to then put the money you were paying to debt towards your business. Don’t Forget About Insurance Freelancers do not typically have individual access to employer-sponsored insurance plans, so it is their responsibility to make sure they are insured. Failure to obtain insurance can put you and your family at medical and financial risk. That’s why it is crucial to ensure you have proper coverage. This includes health, life, car, and any business insurance you may need. While it may be tempting to forgo insurance due to the cost, it’s important to remember that insurance is one of the best things you can do to protect your finances. Set Money Aside for Taxes Taxes can be stressful for anyone, and unfortunately, freelancing taxes can be even more complex. Because freelancers don’t have taxes withheld automatically from their income like traditional employees do, they have to make estimated quarterly tax payments. Because freelancers have to pay taxes every quarter, it is necessary for them to set aside some of their earnings to make tax payments. One easy way to ensure you have money set aside for taxes is to create two separate business savings accounts. One account is where you can deposit money received for your freelancing services. Then, you can take a percentage of your earnings out and move it to the second account to act as an estimated quarterly tax account. Plan for Ups and Downs As a freelancer, you likely earn drastically different amounts from month to month. Even freelancers who earn a high income every year can attest that there are slower months in their business. To be a successful business owner, it is integral to accept that not-so-good months will happen and to plan accordingly by creating a budget, building an emergency fund, and planning for taxes. Have Confidence in Your Finances When you are a freelancer and business owner, your finances will never be predictable or steady. Despite the inconsistencies, it is possible to take charge of your finances and build wealth. With wise money moves, prioritization of saving money, and responsible business practices, you can master your money as a freelancer. It is then that you can truly enjoy all the benefits of freelancing. via Freelancers Union Blog https://blog.freelancersunion.org/2022/03/23/a-freelancers-guide-to-organizing-finances/
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This post is sponsored by our partner Lili. (Art Credit: Kathryn Sheldon) If you’ve felt a profound need to “be free” and strike out on your own in your career, freelancing might be your next step. It’s a great (and brave) way to achieve financial freedom, gain more control over your schedule, and finally live out your dream career. But it’s not all fairy tales when opening a business. There are some essential startup costs you need to plan for so you can budget wisely and keep moving forward. How much money do you need to start a business?Below is a breakdown of typical startup costs you’ll encounter when you first get started: Equipment and technology (essential one-time cost)The technology you need will of course depend on your business and may include a computer, downloadable software or online tools, and inventory (raw materials/products). A few examples: a freelance copywriter might need noise-canceling headphones (especially if they work in a shared workspace or public place), a wireless mouse, and a keyboard, a photographer would need a camera and an artist might need a POS device. Make a list of the technology you need for your job and research the best prices. Since you’ll be using this equipment daily, it’s a good idea to invest in quality goods in order to avoid unnecessary maintenance costs or even having to replace it in a year. A space to work (essential ongoing cost)When deciding where to work, think about how you work best. If you’re more of an introvert and you have space at home, creating a home office might be your best bet, while an extrovert might prefer co-working or renting a studio with a few other freelancers. Office utilities (essential ongoing cost)Any utilities you use while working, including your WiFi, water, electricity, gas, and phone bill. Yes, even your phone bill, since answering client emails, calls and texts is an integral part of the job. Online presence (essential ongoing cost)Creating a website, online store, or blog for your business will make it easier for customers to find you online. So any costs related to designing and launching your online presence are all considered business expenses, including your domain name. Office supplies (essential ongoing cost)Buying notebooks, pens, a day planner, and a screen cleaner might sound trivial, but without them, your day-to-day job would be missing a few critical players. Stocking up on office supplies gives you the tools to write and plan your day effectively. You don’t want to be on the phone with a client taking notes on your hand with a dry highlighter, do you? Office furniture (essential one-time cost)When creating your own space, budget for a comfortable office chair, desk, or any furniture you need to work comfortably and ergonomically, so you’re not slowly destroying your back in the process. Business registration (essential one-time + ongoing cost)The dreaded “accounting” stuff. A big part of starting your freelance business is accounting, but it becomes second nature once you learn the basics. In terms of startup costs, you’ll want to trademark a business name, register your business and get business insurance. Invoices & accounting (essential ongoing cost)To make sure you get paid and pay your taxes on time, choose financial management tools to help you deal with invoicing, expenses, and filing taxes that fits your needs. Set aside 30% of your total income a month for taxes and consider a mobile banking solution with lower fees to help control costs. Education & courses (optional ongoing cost)Before taking on your first few clients, take some time to brush up on your skills and fill in any knowledge gaps. Investing in education is always a good idea, especially as your business grows. So joining an online learning platform like Coursera, Skillshare, or MasterClass could give you the confidence boost you need to hit the ground running. Of course, you can also watch YouTube videos for free. Having a mentor, whether they’re in-person or online, can help guide you in the right direction and keep you on course (pun intended). Marketing & lead generation (optional ongoing cost)Once you’ve handled the initial setup costs and you’re ready to find clients, investing in online ads can help drive traffic to your website or mailing list. Business travel (variable cost)Traveling for business includes transportation, food, or accommodation you need for any work trip or client meeting. As long as work is involved, you can expense it. Tip: Everything on this list you can expense to reduce your taxes. Business startup cost typesFortunately, you don’t need to take on all of these business expenses at once. You can save optional costs for later once you’ve built up your cash flow. So here are a few different types of startup costs to consider when starting your business:
A few startup cost examplesUse this list to estimate costs you should budget for when first getting started.
Bottom line: You’ll have more one-time essential costs in your first year, so make sure you have the budget. But don’t worry too much—you’ll expense all these fees to reduce taxes later. Remember, you’re worth itWhen starting a business, try not to stress about spending money. It’s an essential part of the venture, and every purchase you make is an investment in yourself and your vision. If financial independence and purpose are what you’re after, then the cost of business is a worthy expense. via Freelancers Union Blog https://blog.freelancersunion.org/2022/03/21/how-much-does-it-cost-to-start-a-business/
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(Art Credit: Andrea Hernandez) Higher education is important to many people and it's often expensive. Whether it's specialized job training or an advanced degree, there are a lot of costs associated with higher education. There are two education tax credits designed to help offset these costs - the American opportunity tax credit and the lifetime learning credit. Taxpayers who paid for higher education in 2021 can see these tax savings when they file their tax return. If taxpayers, their spouses, or their dependents take post-high school coursework, they may be eligible for a tax benefit. To claim either credit, taxpayers complete Form 8863, Education Credits, and file it with their tax return. These credits reduce the amount of tax someone owes. If the credit reduces tax to less than zero, the taxpayer could even receive a refund. To be eligible to claim either of these credits, a taxpayer or a dependent must have received a Form 1098-T from an eligible educational institution. There are exceptions for some students. Here are some key things taxpayers should know about each of these credits.The American opportunity tax credit is:
The lifetime learning credit is:
Taxpayers can use the Interactive Tax Assistant tool on IRS.gov to figure out if they're eligible for either of these credits. More information:via Freelancers Union Blog https://blog.freelancersunion.org/2022/03/17/two-tax-credits-that-can-help-cover-the-cost-of-higher-education/ Freelance Businesses Claiming the Employer Retention Credit Now Face an Increase in Taxable Income3/16/2022
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(Art Credit: Pedro Gomes) The Employer Retention Credit (ERC) was first introduced in 2020 as part of the U.S. government’s relief for small businesses who were adversely affected by the pandemic and was also made available in 2021 to employers who kept employees on their payroll during Covid-19. The bad news: if you applied for the ERC in 2020 or 2021 even if you have not received the money yet, you will now face a tax bill payable for funds you either received or may receive. Even if the ERC payments that you applied for is still pending based on your payroll, they are considered taxable income in the tax same year as the application was made. Here is an expert take on the tax impact of the ERC on small businesses from CPA for Freelancers® founder, Jonathan Medows, CPA: “While the original intent of the ERC was to ease the burden for businesses who kept employees on payroll during the pandemic, the bottom line now is that you could owe tax on money that you have not received yet.,” said Medows. “If your freelance business had two employees and applied for the ERC for three quarters in 2021, even if you did not receive the money, you could have a tax bill related to the pending ERC payouts.” Here is a practical example of a small business with two employees receiving ERC payouts and the potential tax obligation which may occur as a result: 2 employees x $7,000 ERC x 3 quarters = $42,000 in taxable income. “An unexpected tax bill of any amount is stressful enough, but this one could be particularly so, given the potential size of pending ERC payouts,” said Medows. Filed your taxes and claimed the ERC? Here is what to do next… “If freelancers and small business owners have already filed their returns, the IRS guidance is to amend your tax return to reduce expenses for the ERC amount claimed. In addition, freelance business owners should look at local and state tax guidance for the ERC to make sure they are paying all necessary taxes,” Medows remarked. “If you have already filed, consider amending your 2020 or 2021 returns. If filing is pending, please factor the 2021 ERC into your estimated tax payments.” via Freelancers Union Blog https://blog.freelancersunion.org/2022/03/16/freelance-businesses-claiming-the-employer-retention-credit/
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This post is sponsored by our partner Lili. (Art Credit: Andrea Hernandez) The idea of decluttering your computer and digital workspaces can feel overwhelming, especially for the freelancer who works at the computer all day. When you have a constant stream of files going in and out, it’s easy for a build-up to collect that slows your computer (and your mental capacity) down. This is the perfect time to declutter and fasten your precious laptop! When you’re in need of a digital refresh, follow these five steps to tidy up your computer and get back on track. 1. Organize and Delete Local FilesStart by thinking about how you want to organize your files on your local computer, and come up with a clear labeling system that makes searchability a breeze. If you’re using MacOS, you can use color tags to help visually organize by right-clicking on a folder. Have a clear naming system for your file folders that tells you right away what is stored within the folder – you can even number the folders to alphabetize them in order of priority or frequency of use. Check out this article for more tips on naming your files and folders! Once you have all your folders labeled and organized to your liking, start moving files into their appropriate slots. As you move files, delete anything that you no longer need (such as almost everything in your Downloads folder and the 598 screenshots on your desktop). Storing files on your desktop is actually very bad for computer performance, so if your computer is slowing down it may be time to purge the desktop and take out the trash! 2. Empty the TrashLook through all of your older folders that didn’t need reorganizing and delete unwanted files from there as well. Once you’ve purged every corner of your local files, it’s time to take out the trash! Right-click on that little trash bin icon and empty it of all those deleted files to get them off your computer for good. Be sure to have your sound on so you can hear that satisfying crinkling sound of a refreshed workspace! 3. Store Old Files in the CloudWhile you were organizing and purging, you probably came across a number of files and folders that are no longer actively needed, but that you can’t erase either, such as old client projects or family photos from Christmas 2010. These older files can take up much-needed disk space, so moving them into a cloud system (or an external hard drive if the cloud feels too…cloudy) such as Dropbox or Google Drive can free up space while still keeping all your memories and back-ups intact. 4. Clear Cache and CookiesIf your browser has been slowing down or you’ve been encountering frequent website errors, it may be time to clear your cache and cookies. This will erase your browsing activity, settings, and information, giving your browser a clean slate to work from. Here’s how to do it for each browser: 5. Purge Your EmailsHow many unread emails do you currently have? Hundreds? Thousands? Your inbox is probably one of the most cluttered corners of your digital workspace, so it’s important to take some time to clear it out! Manually deleting old emails and unsubscribing from irrelevant email lists can take hours, so try setting up an auto-archive or using an email organization service like unroll.me. Need Even More Tips?Here are a few more ideas to really level up your digital organization game:
Now that you’ve decluttered your computer, you’re ready to take on the new year! Freeing up your digital workspaces not only makes your daily workflow easier (aka increase productivity!) but it frees up the precious gigabytes you need to start working on new projects as well. via Freelancers Union Blog https://blog.freelancersunion.org/2022/03/14/5-steps-to-decluttering-your-digital-workspace/
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(Art Credit: Pedro Gomes) Although it is almost the midpoint of the tax filing season for 2021 returns, the IRS is lagging seriously behind on processing 2020 returns, to the point that the delay in processing returns from prior years and issuing refunds is so dire that many freelancers and business owners have been waiting to resolve their IRS issues for months, if not a full year. If you are in this situation, know that you are not alone—it is estimated that the IRS has over six million returns still left to begin processing and 35 million more pieces of unopened correspondence to address from the past filing season. The causes of this brutal backlog, according to former IRS insiders are unprecedented staffing shortages and an overwhelming amount of work left unprocessed in IRS offices from when the Covid-19 pandemic forced workers to be remote. Waiting for a prior year tax refund? Be patient and proactive with any notices you receive. A January 12 NBC News report about working conditions at the IRS stated that, “The agency faces staff shortages, with fewer than 15,000 workers handling 240 million calls last year. Its workforce is the same size it was in 1970, with a budget 20 percent lower than it was 10 years ago.” Adding to the stress of this situation is pressure from the American Institute of Certified Public Accountants (AICPA) and Congress to stop sending some automated tax notices and related actions because the agency has issued many erroneous automated notices indicating that they have no record of a return on file but that they have payments on file. This is adding to the confusion. If you received such a notice, you are generally safe to wait until after this year’s tax filing deadline of March 15 for business returns and April 18 before you take action. However, it is advisable to have a tax professional review your notice and ensure that you take any appropriate action, if required, as soon as the 2021 filing season ends. If you have tried to reach the IRS regarding a refund or other notice, you have no doubt found it difficult to do so. This is not a situation solely affecting individual taxpayers or business owners. Tax preparers and CPAs are in the same situation, and even if a caller is successful in getting through, the IRS representatives often do not have access to the information in question. The bottom-line, best advice to handle the IRS backlog without creating negative consequences for you and your freelance business? Remember that this situation is out of your control and that the human factor of the IRS is at play. They are doing the best that they can, opening mail and processing prior returns on a first in, first out basis. With this in mind, per guidance from the IRS for 2021 filings that are currently under way, it is advisable to use electronic methods to submit your 20221 return. You can do this by a) e-filing or b) you can make your payment and get refunds electronically. The silver lining in the IRS slowdown. While it may be cold comfort if you are expecting a refund and it is delayed, it is also a chance to recalibrate your current tax situation so that the taxes you pay on a quarterly basis are more accurate and you don’t end up with several years’ worth of tax returns with potential refunds sitting for indefinite periods on the desk of an overworked (or absent) IRS agent. via Freelancers Union Blog https://blog.freelancersunion.org/2022/03/10/is-the-irs-backlog-affecting-your-freelance-business/ |
AuthorI have 5+ years experience working as a medical transcriptionist. When I am not working, I enjoy sports like playing basketball or judo. I love making friends and connections. Archives
April 2023
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