As we jet through December, some people will start to gather information in preparation for filing their taxes next year. I don’t mean to say that this is something everyone needs to do, though. For example, if the only income you receive all year is from a regular job that will send you a W2 next month, that is going to handle a lot of numbers we have to fill in come filing time. More and more, however, that situation is covering less and less people.
Of course that one-W2 situation would never cover businesses (and I’ll return to them more next week), but many individuals are becoming more like a business in our current economy as they earn money in ways other than just through a paycheck, These extra bits of income can include a side business, freelance work, or even participating in the sharing economy. It is those people, who come with a slightly more complicated tax picture, to whom I want to speak to this week.
The society we live in makes it easy to become one of these people as the internet offers simple ways to make more money. Websites such as Fiverr and Upwork provide an arena for people to bring their skills to those who need them, making connections that could be impossible outside of the digital world. Many of these transactions are carried out for a nominal amount, but that still counts as income.
Possibly more prevalent are those getting money through the sharing economy. This ranges from Uber drivers to those offering up their home, or even exclusive properties, on Airbnb. So even if you have not technically made yourself a business, it is possible that you have been getting some money in a way that means you should start thinking like a business.
The first thing I want to make you aware of in these situations is the self-employment tax. I could spin off into too many paragraphs about how this works, but will try to keep it simple. This boils down to the government ensuring you still contribute to social security and Medicare out of income earned through self-employment. This is something that many are unaware of until they have to pay it.
On the other side, though, many types of self-employment will also come with expenses that become tax deductible when they are incurred by doing this type of business. Just what is an allowable deduction (or how much of it is deductible) will vary depending on what it is you are doing, but chances are really good that there is something you can deduct.
And there we loop back around to where it can pay to be conscientious and think about these things before it is time to file your taxes. Thinking like a business will only result in better numbers at the end of the process, and the best businesses stay on top of things. So please be aware that we are open for planning meetings now to help you get the most out of this and all coming years
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