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(Art Credit: Andrea Hernandez) Like many freelancers who are good at what they do, you likely get approached by not-for-profit organizations (or friends who work for them) to provide pro bono services. That is, you do work and provide services without charge. This is a great way to gain exposure in a market as well as create some goodwill, however, it is important to understand that it really has very little benefit to your tax situation. Unlike actual charitable contributions and some expenses related to performing pro bono work, such as mileage driven and supplies used in the performance of the volunteer tasks, any work you do in and of itself is not tax-deductible. This is the same rule as volunteer hours, which are generally not tax-deductible either. For the expenses you can deduct (see the IRS guidance below), you must itemize your deductions on Schedule A of your federal 1040 tax return for them to be eligible and this practice is usually only favorable if the amount would be greater than the standard deduction which is now $12,950 for individuals and $25,900 for married taxpayers filing jointly. To qualify, all pro bono deductions must meet two IRS rules:
Any potential deductions including meals eaten with donors, printing, events and related items must be considered necessary to provide or perform the service that directly benefited the charity. The fine line between freelance pro services and pro bono work. The Internal Revenue Service (IRS) also distinguishes between the pro bono provision of professional services and volunteer work. In both of these scenarios, you can't deduct the standard fee for the time you donate, but you can deduct qualified expenses that you incur to provide those services unless they benefit you more than the charity you are using them for. An example of this would be the cost of equipment you continue to use, such as a printer. Claiming pro bono deductions related to your freelance work Any tax break you claim for pro bono work must be a legitimate charitable contribution, which would usually be claimed as an itemized deduction. That being said, you can't gain any tax benefit from claiming them unless you forgo the standard deduction. The Tax Cuts and Jobs Act doubled standard deductions beginning in 2018. This means that many freelancers may find that the deduction is larger than the total of their itemized deductions given that you are limited to claiming overall charitable contributions of no more than 60% of your adjusted gross income (AGI). Another limitation is that you can only make donations to eligible charities such as churches, government entities, and any organization that is listed as qualifying on the IRS website. Work-related expenses that are deductible for pro bono gigs The IRS clearly indicates that you can't deduct the value of your services or your time that you spend helping others. While you can’t deduct your professional time for pro-bono work as a taxable item, you can deduct tangible expenses such as paying a contractor to build a website as part of the services you provide. Travel expenses related to your pro bono work are also deductible at the same rate as the IRS standard mileage rate. Rigorous record-keeping is critical for claiming pro bono freelance expenses Just like any other expense or charitable deduction, you must keep detailed records of receipts to substantiate freelance pro bono work for tax purposes, especially to reduce the risk of the IRS disclaiming them. While the tax situation may not move in your favor with pro bono work, that should not be the sole factor in your decision as to whether to support organizations you care about with your skills and services. It is an important reminder of the need to be aware of the tax implications of your freelance business activities and how they impact your total financial picture via Freelancers Union Blog https://blog.freelancersunion.org/2022/06/06/tax-deductions-are-few-for-pro-bono-freelance-work-get-in-the-know/
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(Art Credit: Andrea Hernandez) This article is posted with permission from our partner IRS and originally appeared on the IRS blog at: https://www.irs.gov/newsroom/irs-reminds-taxpayers-who-havent-filed-yet-to-choose-their-tax-preparer-wisely Subscribe to IRS tax tips here. Taxpayers who have not yet filed their 2021 tax return may file electronically when they are ready rather than wait until the October 17, 2022, extension deadline. If they are considering hiring a tax preparer, it's important to choose wisely. Taxpayers are responsible for all the information on their tax return, no matter who prepares it for them or when it's filed. There are different kinds of tax return preparers, and a taxpayer's needs will determine which kind of preparer is best for them. Here are some things taxpayers should do when choosing a tax return preparer
More information:via Freelancers Union Blog https://blog.freelancersunion.org/2022/06/02/irs-reminds-taxpayers-who-havent-filed-yet-to-choose-their-tax-preparer-wisely/
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(Art Credit: Karen Fischer) Many people these days are switching to a new model of work. Instead of being on payroll as a traditional employee, they are working as freelancers. Being a freelancer has many advantages. You have more control over your hours, the amount of work you take on, and how you accomplish that work. Not to mention, many freelancers make more money for their work per hour than they did as employees. But, when it comes to taxes, the story is a bit different. Freelancers no longer have it as easy as a traditional employee. In fact, if this is your first year working as a freelancer, you can expect major changes when it comes to managing your taxes. Here are four tips to get you started. 1. Gather all your Form 1099s. One of the first changes includes new tax documentation. Instead of receiving Form W-2 from your employer, you can expect to receive Form 1099-MISC, Miscellaneous Income, from any client that paid you $600 or more during the year. And, unlike Form W-2, you don’t need to send a copy of Form 1099-MISC to the Internal Revenue Service (IRS) with your tax return. Your client sends the agency a copy as well. But when it comes to completing your tax return, make sure you report the same amount of business income shown on all your 1099 forms. If a Form 1099-MISC is incorrect, request a corrected version from the sender. Reporting less total income than the total on your 1099 forms can result in receiving a letter of correction from the IRS. 2. Make sure you’re really a freelancer. It’s not unheard of for employers to pay people as freelancers who are actually employees according to IRS standards. Doing so simplifies things for the employer because they don’t have to file payroll reports and pay payroll taxes. But, unfortunately, that’s not right. If you’re really an employee, you should be treated as one. And that includes receiving benefits and payroll taxes paid on your behalf. Generally, you’re an employee if the company tells you how to do your work, pays for your supplies or other expenses, and more-or-less treats you as a permanent employee. Check out the IRS site for more details. If you think a company has misclassified you as an independent contractor when you’re actually an employee, you can file a Social Security tax form. Use Form 8919, Uncollected Social Security and Medicare Tax on Wages, to calculate and report your share of uncollected Social Security and Medicare taxes as an employee. 3. Report your freelance income on the right form. The form used to report your freelance business income and expense activity depend on how the business is organized. If you work by yourself and haven’t organized your business another way, you likely report freelance income on Schedule C with your Individual Income Tax Return, Form 1040. You can also choose to file Schedule C if you set up your business as a limited liability corporation (LLC), and you are the only member. 4. Don’t forget state and local taxes. Depending on the type of work you do, you may need to register your business with your state or locality. You generally must register if you use a business name other than your own name. If your state or locality collects income tax, be sure to report freelance income on your state return. You also may need to file state excise tax and payroll tax returns, depending on your state laws and the type of income you receive. via Freelancers Union Blog https://blog.freelancersunion.org/2022/06/01/untitled-5/ |
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
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