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What might be different this year: Gig work

1/20/2021

 
So if the amount of unemployment you were eligible for was not sufficient, you might have turned to gig work!  Maybe you gave voice lessons or personal training online through Zoom, or started driving for Uber, or started selling things on Etsy. And that means you might have earned a lot more than you were expecting outside of a traditional employee job. What might that mean for your taxes this year?

1.  You do need to report it.  If you were working for a company, you will likely get a 1099-NEC, but a lot of you may have just gotten paid through Venmo or Paypal etc for things like online voice lessons or tutoring or personal training, etc. That money is not free!  You do need to report it on your taxes.  If you do not, it can get you in big trouble.  And if you come to me and say, yeah, my income on paper is so low because I earned 10k from Venmo, but I don't want to report that...then you unfortunately can't be my client.  I can be fined for preparing a return that understates income, so it's not something I can help you with!

2. You can take deductions on it!  You may be used to not doing deductions because you think you need to have a certain amount for it to count, or you thought they repealed deductions.  That's true for employees, but not for gig workers and the self-employed!  You definitely should be taking deductions to reduce your taxable income, check out my spreadsheets!

3. Be prepared to pay 20% on that money! Normally when you are an employee, you don't worry about taxes, they are handled for you.  But when you are on a 1099 or self-employed, you get to be the one to handle it.  You have to pay both the income taxes (federal and state) and the self-employment taxes.  Self-employment taxes are usually the biggest shocker.  These are the taxes that pay for Social Security and Medicare, and they are about 15%. When you are an employee, they just come out of your check automatically (and half is paid by your employer and isn't even on your paystub!) and they aren't even on your tax return.  But when you are self-employed, you pay them on your taxes on top of income tax.  That's why you can wind up paying what seems like a very high percentage, even if you didn't earn that much money.  You can be only paying 3% in federal income tax, 2% in state, but then 15% in self-employment, and that's how we wind up with 20%.  

4. Don't get into a vicious cycle of tax debt!  If you didn't know you needed to be setting aside so much, this tax season might be a nasty shock, but you will climb out of it.  Pay the taxes in full if you can, or set up a payment plan with the IRS and the state.  The interest on payment plans is WAAAAAAAY lower than that of credit cards, so it's a much better deal to do a payment plan than put them on a credit card.  And start dealing with 2021 now and going forward.  Make estimated payments on your 1099 and self-employment income (how to videos on that coming soon!) so that this doesn't happen again.  Also, you might be penalized for underpayment if you owe too much when you pay your taxes, which is another good reason to get going on estimated payments.  

EFile not opening til Feb 12, yikes!

1/15/2021

 
Hey earlybirds!  If you were hoping to file early, well, the IRS just threw a wrench into that.  They just announced that efile will not be opening until Feb 12, which is 2-3 weeks later than normal.  That doesn't mean we can't still have our appt before then!  If you are an earlybird, we can get your return done and ready to go, and then you will just need to sign the efile documents later, right around Feb 12, and then I can file it from there.  But it's still good to be early!

What's happening with the stimulus?

1/5/2021

 
Hi folks! So the House and Senate FINALLY passed a new stimulus bill and Trump finally deigned to sign it. So what's in it?

1.  The biggie, $600 checks. As we speak, they are being direct deposited to accounts, and mailed out.  Even if you got your previous $1200 stimulus direct deposited (DDed), you might not get your new one directly into your account.  If you got a refund DDed when you filed 2019 OR specifically included direct deposit info when you filed your return then your stimulus should be DDed.  If you owed money for 2019, even if you paid with direct debit, you are getting your check mailed and not DDed.  And it's getting sent to whatever address the IRS has on file for you, which is likely the address you used when you filed 2019. If that's not where you are, you will need mail forwarding or hopefully a roommate or something at your old address who can grab it for you.  If you have moved, have no ties to your old address, and haven't set up forwarding in time, then you can claim the $600 on your tax return, but you will have to wait til you file. The IRS has set a deadline of Jan 15 to get the money out, if you don't get your money by then, you have to wait til you file your 2020 taxes.  Check to see where your money is here. My first stim check got DDed, but I just got my new one in the mail, so they are really churning them out.  

2.  More unemployment!  They extended emergency unemployment benefits, and added $300 a week to whatever your state benefits are.  So it's like the $600 extra per week you were getting last year, just, you know, less. 

3.  Opened up a new round of PPP loans!  If you had Schedule C income in 2019 (so 1099s or self-employment!) and are NOT on unemployment, a PPP loan might be a great idea for you.  They call it a loan, but it's 100% forgivable, so really, it's a grant.  You can't get it with unemployment though, because it's meant to cover wages for 10 weeks.  If you think you might benefit from a PPP loan, please do get in touch with me.  And if you already got one, you can get another one if you can prove you had 1 quarter of revenue in 2020 that was 25% lower than the same quarter in 2020.  Again, if this might be you, get in touch!

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    Jennifer your friendly neighborhood tax preparer

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