Tax Myths Every Creative Freelancer Need to Bust
This article has some amazing Mythbusters for many of the Tax Myths in the minds of Freelancers.
You recently passed through a taxing session. You feel like the preparation for this tax session was not up to the mark. Your present is the only best time to plan well for your next session. Mostly all the freelancers get numerous advice, some of them appropriate and rest just rumors.
So, through this article, we have tried to burst all that common tax myths to help you to set yourself well for the next tax session. Here’s the list:
#1: Didn’t Receive 1099? Don’t Have to Pay Taxes on That Income
If you are a creative freelancer, you won’t receive a W-2 form. Rather you might receive a 1099-MISC from any client who paid you during that year. Copies of the same are sent to IRS for the comparison with the income on your tax return. In case of the income you mentioned is less than that in your 1099, you can expect the agency to send you a memorandum asking for penalties, additional tax or, interest etc.
Some freelancers mistake that if they haven’t received 1099, they don’t need to report their income. But this is not the complete truth. According to the rule, if you receive more than $600 from the only company or organization, during the calendar year. They need to send 1099. Also, sometimes, the company don’t send it or delay or just mail them to the address too.
Your income is taxable disregarding the receipt of 1099. It’s better to have a regular check on your income by using a cloud accounting system and not by relying on 1099 till the year-end. You can later use it to confirm the amount on your 1099.
#2: Deduction of Home Office: a Red Flag to Audit
There were higher chances of auditing if you had deduced your home office. At that time cloud software didn’t really exist which just required an internet connection. As a result, a home office was rarely possible.
Today. the scenario is different, home offices are very common. Remote area workers, economic weak gigs put there most of the efforts and available finances on home offices. The home office deductions do not have much rules or bindings nowadays, so you can think of a home office. Just keep in mind that you are moving along the IRS rules.
Oh yeah!!!! It looks like a real home office….!!!
#3: All Business Meals Are Deductible
Creative freelancers mostly found working while traveling and having meals side by side while working. Maybe working in a coffee shop or having a bite along. So is your meal deductible? Not always. Here are the three cases in which your meal is deductible:
- Meals while traveling for work: 50% of the tax is deductible if you are traveling for work. Traveling for work means you are working out of a general reachable area from your home. And the work you are out for is of more than a day.
- Meals with employees or clients: here also 50% is deductible from your tax if you had a meal with your client or employee. You are eligible for this on a condition that the meal is along with a business meeting or discussion.
- Meals provided to employees: great…! if you are offering meals to your employees, you don’t have to pay any tax for it. Meals to employees are 100% deductible from tax.
If you are grabbing meals with your colleagues while you are working, make complete documentation too.
#4: All Business Vehicles with External Advertising Are Deductible
Isn’t it a good idea to and write off every gallon of gas, oil change and a new set of tires? But the deduction for vehicle expenses isn’t based on advertising. It’s based on the number of miles driven for business versus personal purposes.
If you use your personal vehicle for business, keep a log of the miles you drive and their business purpose. Then you can claim a deduction based on the standard mileage rate or actual expenses.
That ad on your car? It might not turn your car into a rolling tax deduction, but you can deduct 100 percent of the cost of the decal or wrap as an advertising expense