5 Tax Myths for Creative Freelancers
The tax period is finally over, and you can relax for a minute, take a deep breath, and start checking out tax declarations for this year. There is various tax advice that people give to each other. And many of them are based on the myths and have nothing to do with the actual tax paying system. We gathered here the most common spread myths to bust them together with you.
You can also check out all the information on the form you are currently looking for, as well as the form itself, here, on our website. We gathered all the forms you may need for your tax year. Follow our recommendations and stop worrying about the IRS.
Myth No 1. You Don’t Have To Pay Taxes Until You Receive 1099 Form
Normally creative freelancers do not receive a standard W-2 form when the date comes. This form summarizes withholding and income based on the yearly salary. In the meantime, they receive a 1099-MISC form filled out by their clients who paid for their services at least once during this year. Copies of these forms are sent to the IRS, where officials compare all the forms to your tax return. If your claimed income is less than the sum of all 1099s sent by your clients, you will be notified by the agency about miscalculations, and charged extra.
Make sure you check the amount of taxes you have to pay. Remember, if you did not receive a 1099 document from your client, this does not mean that you don’t have to pay taxes from your income. Usually, organizations or people who paid you over $600 per year have to send you 1099 form. And companies can forget to send you the copy, or send it to the old address, etc. It does not matter whether you receive this form or not, it is still taxable.
Myth 2. Office At Home Attracts Auditors
That’s not true at all. Nowadays, there are plenty of home offices across the States. It does not matter whether you work from home or go to the office. You have the same chances to be audited. A long time ago, when home offices were rare, auditors could have checked them frequently.
Today there are millions of remote employees and people who prefer to manage their business from home. You don’t have to be afraid of making your home office legal. All you need is to make sure that your home office meets all the requirements of the IRS for the deduction.
Myth 3. All The Food You Eat While At Work Is Deductible
Multiple freelancers prefer to work from a coffee shop with high WiFi Speed. Some of them prefer to work in the park with a coffee and a cake. And many of you are willing to buy their clients lunch. However, no all the food consumed by a freelancer is deductible. There are actually only 3 categories of meals that can be deductible:
- The meal that you take during work travels. Actually, you may deduct 50 percent of meal costs during business travels. Only the meal that is bought outside the area you normally work can be qualified as travel food.
- The meal that you share with employees and clients. You can deduct 50 percent of the cost if you share the food with the employee or client. It is also necessary to discuss business and come to some agreement during the meal.
- Meal received from employees. You can deduct the total cost of summer picnics and holiday parties. You may even deduct 50 percent of the cost for the meal that you got for the employer’s convenience when you have to work extra hours, for example.
Myth 4. All Vehicles with External Ads Are Deductible
It does not actually matter if you place the company’s logo on your car when it comes to cutting your taxes. You have to know that the deduction of the expenses on the vehicle calculates without ads. What actually matters is how many miles you drove for business in this car.
You have to keep track of miles you drive while doing business, meeting clients, or running errands. You may claim deduction during the taxpaying process based on your mileage rate or on the expenses. If you are eager to receive a deduction for an ad on your car, you may deduct 100 percent of wrap or decal cost for the expenses on the advertisement. That’s it.
Myth 5. You Can Avoid Self-Employment Taxes With LLC Form
These self-employment taxes can actually take a big part in your income as a freelancer. If you earn at least $400 being self-employed, you have to pay 15.3 percent of tax as an addition to the state income tax rate and federal tax rate. Usually, freelancers are looking for a way to outsmart the system and cut the tax.
There may be few legal ways to reduce the amount of money you have to pay, but you can’t avoid them completely. Sole proprietors pay Self Employment tax based on their business share. If you create S-Corporation or LLC taxed as an S-Corp, you pay yourself social security, salary, and Medicare.
Myths You Know
We have shared the most common myth on taxes for freelancers we have heard of. If you know other interesting myths, you can share them with us in the comments below. Tell us about the myths you’ve busted yourself.