Last week we invited CPA Jonathan Medows for a live Q&A to answer all your questions about taxes for freelancers. Here’s what we learned.
1. Save your receipts. You must keep your original or scanned receipts going back up to six years in case of an audit. The IRS will not accept bank statements. Consider keeping your receipts organized in a binder and sorted by date.
2. Report every dollar you make. You are required to report all income, regardless of whether you were given a 1099.
3. You may have to pay estimated taxes. If you are making a profit as a freelancer you are required to pay estimated taxes quarterly. The amount you have to pay is typically based on your income from the previous year.
4. You can donate your time, but you can’t claim it. If you are donating your professional time to a nonprofit organization, only your expenses can be deducted as a charitable contribution, not your time.
5. You still have to report that check even if you didn’t cash it until January. If you received a check in December 2014 but didn’t deposit it until January 2015, you still need report it in your 2014 tax return. The income must be claimed in the year that you received the check.
6. You can claim your health insurance as an expense. If you make a profit as a freelancer you can claim your health insurance as an adjustment against your gross income.
7. Don't exaggerate your travel costs. Excessive travel and meal expenses or low profit/loss are some of the common red flags for auditors that may prompt an audit.
8. That pocket change you made on Airbnb may be taxable. If you rent out your apartment for more than 15 days per year that income is taxable. But on the bright side, if you keep track of your expenses associated with renting it out (cleaning, etc.) you can use those to offset your income. Just keep your receipts!
Check out the full Q&A here.