Tax season can be hell for freelancers.Just ask Business Insider’s Sam Ro, who’s facing a tax return nightmare after freelancing for several months last year and withdrawing his entire 401(k).
We talked to some experts for tips on filing taxes as a freelancer.
File an extension. This late in the game it doesn’t pay to fool around, says Kay Bell of Don’t Mess With Taxes. “The extension will give him time to find a professional who can help him out since even if he thinks he knows what he owes, he doesn’t know how much.”
Round up the paperwork. Sam needs to collect all his lunch receipts, utility bills, pay stubs, W2s and 1099s from where he freelanced, plus the 1099 R for the 401(k) he withdrew from. He’ll also need to measure his studio so he can make the proper Schedule C (self-employment) deductions.
Hire a preparer. Clearly, Sam needs to call in the big guns. That means hiring a seasoned tax pro who specialises in preparing freelancers’ returns and has been at it for at least three or four years, says Neil Johnson, an accountant. To find a good one, Bell suggests asking friends for referrals, then asking to see the preparer’s certification and ID. The latter is important, as the IRS is cracking down on cons.
Watch out for scammers. Even if he’s freaked out, Sam shouldn’t let scammers take advantage of his confusion. Freelancers should be wary of any storefront, pop-up shop or moron filing 1040s in his kitchen, says Johnson. “Don’t listen to anyone promising a refund in two days, either—when you’re getting money that quickly, it’s a loan based on your refund and fraudulent,” he adds.
Consider opening a SEP IRA. “Opening a Simplified Employment Pension IRA funded from freelance income could help reduce his income tax,” says Johnson. “He’d also be socking away money for retirement, which never hurts. He has until April 17 to do this, or the date his taxes are due with an extension.”
Take a deep breath. “He’s going to owe some taxes,” says Bell, “but they might not be that big or maybe he’ll get money back.”
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