We came across a most interesting conversation at a site called "The Billfold", authored by Jazmine Hughes & John Sherman.
Jazmine: (Ok, I literally know nothing about 1099s, but here goes) SO HEY FRIEND! It’s tax season! Are you all done?
John: Yay! Erm, sorta.
I spent, like, four hours one night last week entering tiny numbers into TurboTax, then was crestfallen at the result, and did the same with H&R Block online. Now both of them are emailing me like, HELLO? DO YOUR TAXES AND PAY US… so I’m putting it off. For now. I did actually go to see a human person at an H&R Block office, and she told me it would be $300 just to process my 1099-MISC, nevermind the taxes I will inevitably owe, so I scuttled back to my desk.
Jazmine: You worked a ton of jobs in 2013. How many W-2s do you have?
John: Five.
Jazmine: Yikes! What jobs are these for, and how did you document the other (2? 3?) jobs you held?
John: It’s a lot. I’m lucky that two of the jobs I had last year were at the same restaurant, so they’re on the same form. So that’s two, then plus the other four W2s (bookstore, bookstore, restaurant, nonprofit) is six, and the seventh job I had is my freelance gig, which has a 1099.
Jazmine: So what was your 1099 for?
John: I copy edited or proofread (slightly different pay rates) something like a dozen novels last year, all with the same company.
Because I was trying to be smart, I kept track of my freelance payments as I went, in a labeled folder with pay stubs and deposit receipts, so I knew how much I’d made before I even got the form. Because I am also not very put-together, the folder lived on top of a pile of books behind my futon.
Jazmine: That’s impressive. I keep track of my minimal freelance payments in a google doc called “GIRL, GET THAT MONEY.” Did you do the responsible thing and set up a freelance tax bank account?
John: I don’t think so? I don’t know what that is, so probably no? And a Google doc is pretty evolved. I feel like an old fart with all my paper. Maybe next year I’ll save stuff on a floppy disk. It will be labeled “BOY, GET A CLOUD SERVER.”
Jazmine: A freelance tax account is just what grown up, responsible people do when they know they’re going to owe on taxes. I’ve heard about people opening an additional bank account, depositing an estimate on taxable wages from freelance work, and then just using that money when it comes tax time.
John: That sounds incredibly responsible. Dauntingly so. I’m for sure gonna look into that for this year. I did just amend my W-4 at my current job, which a labyrinth of forms told me will reduce my tax burden.
Jazmine: What does that mean?
John: I’m honestly not thoroughly sure, BUT the basic idea is that I’ve elected to have more money taken out of my paycheck regularly, at the risk of overpaying my taxes this year. I’ve also elected to have a small, additional amount of money withheld from each paycheck.
So it’s kind of like opening a separate bank account, except I’m sending the money to the government first, which now that I write it out seems really stupid.
Jazmine: How much money, approximately, did you make from freelancing? How much money do you think you’ll have to pay back to the IRS? (I’m assuming that all your W-2 taxes are fine and dandy.)
John: I made a little over $4,800 freelancing last year, and I’m expecting to owe almost $900. Although, before I entered my 1099 my refund was looking to be about $900, so it’s possible that I owe closer to $1,800 on that amount alone.
Jazmine: Wait. Explain that second part to me. Your refund, just with W-2s, was supposed to be $900?
John: Yes.
Jazmine: And then when you entered in your 1099 info that changed?
John: Yes. It turned inside-out. I really have no idea why, but I wonder whether it has something to do with my tax rate based on my total income?
One thing you can do is deduct expenses from your taxable income for things that are related to your work. So if you bought a computer, or if you have a home office, or if you need to buy pens or a burner phone or duffel bags for toting cash, you can deduct the cost of buying those things. I managed to delineate an area in my 150 sq. ft. bedroom that I convincingly use “exclusively” for my freelancing, so that shaved a bit off of my taxable income, but only like $100. I did buy some nice sweatpants, so maybe I can deduct those?
Jazmine: I write best in no pants, so I don’t know.
John: Maybe I should get a more expensive editing outfit.
Jazmine: Why/how did you start freelancing? Was it to pad your bank account when you were working all those crazy jobs or because we went to liberal arts college and we all feel like we have a “really good book/listicle/thinkpiece” inside of us?
John: Definitely option A. (Though don’t we all have a listicle thinkpiece inside us, just dying to be set free?) It was an opportunity to make some money on the side, at which I leapt.
The more I did it, though, the less “on the side” it has turned out to be. Case in point, I’m having to fill out a bunch of forms about it.
Jazmine: Did it decrease at all when you got your current job?
John: Somewhat, though I find it hard to turn down a money-making opportunity, even if it means that now I’m squeezing it in between 8 p.m. and bedtime instead of mornings before going to work at 2 PM.
Jazmine: How does your freelance income impact your month-to-month finances? Does it arrive all at once? In little drops?
John: It arrives in large-ish drops, spread out depending on the number and size of my projects. What’s nice is that it’s rolling, so once I finish a project I can estimate how much it will pay and expect to get a check in two weeks or so.
So if I’ve been saving up for something or want to pay down a chunk of my credit card bill, I can do that and expect to make it up fairly soon. That said it’s sometimes unpredictable; I waited a month for my last check.
Jazmine: You told me that the complex and annoying tax part of freelancing almost makes you not want to freelance anymore. Is that still true?
John: To some extent. If you make less than $600 doing it you don’t have to deal with a 1099, so I’m sort of inclined to try and cap my work at that amount. At the same time, though, it’s a great way to live with a little bump in income every month or two, minus April.
It’s the sort of thing that would be cheaper if I did it either significantly more or significantly less. As it is I think I’ll keep chugging along and just plan better for next year so it’s not such a bite all at once.
Jazmine: What are you gonna do differently next year, then?
John: My hope is that my W-4 will behave and that the tax I pay in my day job will counterbalance the tax I owe for my side thing, but I’m also going to look into setting up a freelance tax account thing since you mentioned it 10 minutes ago.
Jazmine: That’ll be $80 bucks. My advice is not tax-deductible.
John: Sigh. Add it to the list.
Jazmine: So what are you going to do when it comes to filing your taxes? Are they simple enough to do online? Are you going back to H&R Block?
John: I’ll probably just do them online like I started to. I figure it’s the cheaper option. (FWIW, the H&R Block online option seems to be cheaper overall than TurboTax, which kept telling me I had to upgrade my package in order to finish my taxes.) I went to H&R Block initially because I thought they might have some government-issued magic wand to wave at my little envelope of things, but I guess the wand costs $300.
They basically told me to do the online version instead of paying for a person to prepare my taxes. I went through the whole rigamarole with both TurboTax and H&R Block online, mostly to price-check my options, but haven’t clicked “OK pay for stuff now” on either one yet. I’m not sure whether this is ok with them. The email reminders are getting a bit pointier.
Jazmine: Eesh. What advice would you give me as someone who will probably be in this situation next year, and is also very attractive and hilarious and committed to writing more and is possibly named Jazmine?
John: I’ll say this, to any Jazmine fitting such a description: There’s an essential difference between the sort of freelancing I’m doing and the sort she’s doing, which is writing. I am editing and proofreading, using skills I have to supplement my income with no real enrichment or reward beyond the money—subsistence freelance, you could call it. I tend to feel a bit mercenary. Taxing a mercenary is fine and good, but taxing an artist just seems cruel.
I’ll let you know how this game of price-check chicken goes. I say keep an eye on the cumulative payout of your freelance stuff, and if it starts creeping up toward $600 start socking a little away.
Also: get paid in cash. But that’s advice for life. [end] Visit "The Billfold" here to comment.
_________
You can follow the co-author Jazmine Hughes on Twitter Here. You can follow the co-author John Sherman on Twitter Here.
0 comments:
Post a Comment