Ahhh that glorious time of the year, tax time...I know it seems scary and confusing but hopefully I can easy some of that fear and trepidation. Since the expansion of the Circus/Aerial Arts as well as other performance arts, it has come to my attention that many are unfamiliar with how to do their taxes or the reality of their tax liability. I am not, I repeat NOT an accountant or an attorney, just an Entrepreneur/Circus Arts Instructor that does the same taxes you do every year.
This is not meant to be scary or dissuade anyone, however there are implication that can affect other people. I reached out to a friend/Entrepreneur Gary Hartwell who made a few really great points about doing his business taxes as a small business owner and contractor from another industry.
“Only claim a loss for two years before red flags are raised at IRS. The more detailed your records the easier it is for a tax pro to sort it all out. When in doubt, a good CPA is priceless. Freelance accountants are easy to find, but it's difficult to find a good one; a small business attorney can usually recommend a good one. Always err on the side of caution, go to a licensed professional. Dealing with the IRS is not fun and fraud is a felony.. If Uncle Sam thinks he's owed something, he'll get it. “
**This is research based information from multiple sources, see links at the end of the article for more information.
What-W2, 1099 or both?
Why-It’s the law..but how much do I really need to make?
Where-Federal and/or States
How-Accountant or Software?
When-When to file and When to expect your forms.
What: Independent Contractors/1099 vs. Employee/W2
Employees-W2 annually from each employer.
Independent Contractors- 1099 from each job with earnings greater than $400.00.
Which one are you?
There are several characteristics that define what an Employee is versus what an Independent contractor is, this is according to the US Labor Department and the US Supreme Court:
Is the work an integral part of the employer’s business?
Does the worker’s managerial skill affect his or her opportunity for profit and loss?
Relative investments of the worker and the employer
The worker’s skill and initiative
The permanency of the worker’s relationship with the employer
Employer control of employment relationship
If a single entity pays you $400.00 or more you will receive a 1099. If you do not receive a 1099, YOU are still on the hook for that money.
Contact any entity that you have done work for in the last year to get a 1099/W2. If they do not provide one, you have options:
Contact the IRS (see below**)
Claim amount the next fiscal cycle (only if you pay taxes quarterly)
Form 1040 and Schedule SE (Form 1040), Self-Employment Tax, if:
Your net earnings from self-employment were $400 or more.
Self-employment can include work in addition to your regular full-time business activities, such as certain part-time work you do at home or in addition to your regular job. Even if you are an Employee at one place and an Independent Contractor at another you are still considered ‘self-employed’ and need to file the form.
Where: Federal and/or State Taxes
Everyone must file Federal Income taxes. There are exceptions, check with the IRS.
File in every State you worked/earned money.
Not all states have income taxes, I live in Florida which does not.
Example: If I earn more than $400 doing workshops in another state, I must file state income tax for that State even though I live and work in Florida most of the year.
IRS.gov says “The 4th month after your fiscal year ends, day 15 or if your due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day. Your return is considered filed on time if the envelope is properly addressed, postmarked, and deposited in the mail by the due date”
This usually means April 15, sometimes it’s later but the 15th is a good rule of thumb.
Quarterly taxes are due every three months (quarters). I highly recommend this option for artist and high income performers. It keeps you from owing a lot of money at the end of the year, but it is up to you of course.
The fault is always yours when it comes to taxes.
**Employers are required to provide or send Form W-2 to you no later than January 31, 2018. If it is mailed, you should allow adequate time to receive it before contacting your employer. If you still don't get the form by February 15, the IRS can help you by requesting the form from your employer.
Claim income without a 1099 in the Additional Income section of your taxes.
How: The Actual Filing of the Taxes
TurboTax Self-Employed works just fine for me and will for most of you. Accounting software makes it that much easier as well.
Accounting Software: I use Quickbooks Self-Employed. It prepares forms such as net profit/loss as well as calculates your taxes based on the accurate input of your accounts (receivables/expenses), bank accounts, credit cards, and investments.
Accountant-Get One... if you are at all unsure or can afford it!
Annually or Quarterly- If you are an Independent Contractor that makes ok money, think about paying quarterly to avoid owing a big chunk all at once. If you are a small start-up with more expenses than profits, annually may be the better option. Both the accounting software and the human will tell/show you which option is best for you at this time. You have to click/ask though, and your situation may change so keep checking in on it.
Don’t procrastinate, it only gets worse and you’ll owe more money!
When in Doubt, contact the IRS: www.IRS.gov
Reference Material and Additional Information
Independent Contractors and Small Business Owners
Fair Wage and Standards Act-US Department of Labor
Misclassification of Employees as Independent Contractors-US Department of Labor