Tax Filing Tips & Tricks for Gig Workers, Freelancers, and Digital Creators

Skylar (Part 1 - 00:12):

Hi everyone. Thank you for joining today's webinar. We've got an exciting topic to share with you about tax filing tips for freelancers, gig workers, and digital creators. We're excited to have you with us today. My name is Skylar, I'm the digital marketing intern here. I'll be your moderator today for this webinar, sponsored by ComplYant. Here at ComplYant, we help small business owners and entrepreneurs find a simple way of managing tax rules and requirements. If you haven't yet, please check us out at ComplYant.co. That's C O M P L Y A N T.CO. Although we are a tax compliance software, we are not an advisory firm. Any information provided by our team members is not intended to be taken as advice or to be perceived as a specific position on any subject of tax law. Leading today's webinar is ComplYant's very own Ro Williams, our Tax Technology Manager. Ro is an experienced professional in the tax industry and has previously held positions at international law firms and public accounting firms. Please join us in welcoming Ro. Take it away.

Ro Williams (Part 1 - 01:16):

Hey, and thank you for joining us today. My name is Ro, as Skylar said, I am the Tax Technology Manager here at ComplYant. I manage all of the apps, tax data, and law integrity. So what that means is I just make sure all the tax rules from the states so the federal governments and municipalities are in the system the correct way. So today I'm gonna talk to you about tax filing tips for freelancers, gig workers, and digital creators. Basically, for those who are self-employed. Tax season is chaotic, it's hectic, and it gets very difficult. And so today I just wanna offer a couple of pieces of advice and generalizations of course, on what you should do in order to prepare and take into consideration for tax filing season. So let's get started. 

Tax Season Tip #1: You don’t need to be an LLC to deduct business expenses (Part 1 - 2:06):

First and foremost, you do not need to be an LLC to deduct necessary and ordinary business expenses. I wanna make that very loud, obvious, and clear. I know a lot of people think that, oh, well I have to form an LLC to take business expenses. That is totally not true. If you are in the business of doing something and that's something that's related to your business and you have to spend money on it, then you are a hundred percent able to deduct those business expenses.

But remember, you have to be in the business of it, so you can't just be doing it as a hobby. So for instance, my brother, he's a plumber. He also has a W2 job. Because he is a plumber and does site contract work, he is allowed to deduct those business expenses he spends on his business because he is in the business of doing that. He's very well known for doing that. I have a friend though, he's an artist and he makes artwork and he has gallery viewings and all these amazing things. However, he does not sell his art in the traditional sense, and he does not put a price on his art in the traditional sense. You can go up to him and offer him a certain amount. Usually, you'll be able to buy the art for that certain amount because he's not technically in the business of it. He does it more as a hobby. He cannot write off business expenses for his art because it is a hobby, not an actual business. But if he decided to change the way he did business to sell his art, to not do it for pleasure, but to actually do it for work and income, not saying that you can't do things for pleasure, but there's definitely a line defined by the IRS, then until that happens, he cannot write off his business expenses.

Tax Season Tip #2: Starting (Part 1 - 03:44):

So the next tip is where to get started. I get asked this question a lot and there are a lot of words on this slide, but don't feel the need to write them down, just take it in. We do have a blog that goes with this presentation. So you can go to the website and view the blog and its majority of the same information. There is a ton of more information on the blog, however. So where to get started? We know that starting is the hardest part for anything. It's the hardest part of working out. It's the hardest part of starting even a business. And so when it comes to taxes, it's no different. It is the hardest part. This is where having a bookkeeping system comes into play a lot. And even if you don't have a bookkeeping system, you still can finesse, is what I like to call it, your way through tax season. So the way you're gonna do this if you don't have a bookkeeping system is you're gonna go into your business bank account because remember, you should have a business bank account and separate it from your personal bank account. So you're gonna go into your business bank account and you're gonna pull 12 months of bank statements and then you're gonna go get your 1099s that you received from each person you've worked with. And you may not have a 1099 if your business income was under 600, but that's okay. 

So you get your 1099s and then you get all of your invoices. So now we're talking about income, the income portion. So with the income portion, you just add everything up, you add your income from your bank statements up, and you just make sure everything matches. And if everything matches, you can just go ahead and put that on your Schedule C. So when it comes to business expenses, there is definitely a line on your bank statement that shows how much you spent that month on your business because again, this is your business bank account. So feel free to add up those totals and get your receipts and compare and contrast and make sure those numbers are in line.

The only issue with your bank statement when it comes to business expenses is they're not categorized and you have to actually put your business expenses on your Schedule C into a certain category. You just can't throw everything in there on one line item. So make sure that you're paying attention to that. And of course, I cannot push this enough. The easiest way to go about running a business is to definitely not commingle those funds. Have a personal bank account and a business bank account. 

Tax Season Tip #3: Filing taxes for if you don’t have a business (Part 1 - 6:03):

A tip that I'm gonna give to gig workers specifically is how to file taxes if you don't have a business. So this is for like Uber, DoorDash, Uber Eats, and things of that nature. If you don't have a business, you'll file your income as other income. So you'll file taxes like you normally would if you had a W2. So you log into the software program and you follow the prompts and there's gonna be a prompt that asks you what type of income you have, you have to select other income. 

The issue about selecting business income in this instance is if you don't necessarily identify as a business, you just identify as a gig worker that's getting money on the side and not necessarily replacing all of their income. You may not wanna put this on a Schedule C, however, if it was a business, this will go on a Schedule C instead of just selecting other income, you would select business income. So just make sure that you're really paying attention to where you're putting income because if you're not very much aware of how taxation works, if you are putting business income on a schedule C, then the IRS is like, okay, fine, this person may have business expenses, but if you're just putting other income on a Schedule C, then we have a different issue. So you just wanna really make sure that you are paying attention to those different prompts.

However, if you are doing Uber, DoorDash, or anything of that nature and it is your business, this is what you do. Remember, you do not have to have an LLC to claim business expenses, and having Uber and DoorDash you should have a mileage tracker that they give you. So those expenses are things that you can claim on your Schedule C. So make sure you are paying attention to where you're putting certain things on your tax return. So traditionally, all income just goes on a 1040. When you add other income, everything flows to the 1040, but you need different backup schedules and forms to get the information where it's supposed to be correctly. So for a business owner, you will use Schedule C. So again, doesn't have to have an entity type, but for someone that has a sole proprietorship or single-member LLC, you will use Schedule C. 

However, if you're just doing DoorDash or something as a gig worker, you're not really taking it seriously, it's not really your thing, then this is where other income comes into play and that information goes on schedule 1. So schedule one and Schedule C, they're like sister forms if you will. Schedule C flows into Schedule 1and Schedule One flows into the 1040. So you will never actually really enter anything directly on the 1040 when it comes to business income or expenses. It all has to flow through. So remember, business expenses and income goes on Schedule C and other income goes on Schedule 1. Also, if you're doing things as a hobby, that will also go on schedule one.

Tax Season Tip #4: Reporting self-employed income when you have a W2 (Part 2 - 0:12):

Tax season tip number four; How to report self-employment income when you have a W2. So if you have self-employed income and you still receive a W2, you'll put your W2 information into the tax software like normal. The tax software should ask you what type of income you have and then you should select the type of income that you need to report. This can get complicated when you're doing things like streaming and I'll touch on that. But just make sure again, you're putting things where they are supposed to go. And I just talked about a couple of slides back how Schedule C and Schedule 1 work together with the 1040. And this is just a depiction of that. So normally a W2 worker will put their income on line 1A. For purposes of freelancers, gig workers, and digital creators, you will put your income, if you're doing it as a business on Schedule C, it will flow through to Schedule 1 and then you'll have this number on line 8 populate. So don't get afraid if you're looking at your tax return and you don't see anything on line 1A. You're used to seeing things on line 1A, that's the norm of it. However, you are stepping outside of the norm now, now you have a couple of other boxes that are getting populated. So just be cognizant of that and don't let it throw you off your game. You're doing things absolutely right.

Tax Season Tip #5: Deducting expenses (Part 2 - 1:28):

Tax season Tip number five; How do I deduct my expenses? I get this question a lot. So first and foremost, you have to identify if you are a hobby or a business. If you are doing this just to do it as a hobby, then you're gonna have more restrictions on what you can deduct versus where you are doing this as a business. And so I'm gonna focus on that a little because that's more so what this information is about. So if you are deducting expenses as a business, you deduct those expenses on Schedule C. Again, this is where a bookkeeping tool is great. However, if you don't have a bookkeeping tool, remember I talked about pulling those bank statements, pulling those receipts, and making sure you identify your expenses. They cannot be personal expenses, that's where you're gonna get in trouble and that's why you always need a separate bank account, a personal bank account versus a business bank account. So you can easily identify like, oh yeah, these are in my business banking account. Of course, they're business expenses. 

So you're gonna go through your bank statement and you're gonna identify everything that's an expense. And the IRS on the Schedule C has a prepopulated section of categories where you put your business expenses. In a bookkeeping tool, you will just defer to your chart of accounts cause your chart of accounts should in somewhat ways because sometimes you'll have more categories, but your chart of accounts, for the most part, should look just like your Schedule C. That's why it's so great. You should be able to take that information and just plug and chuck where things need to go.

But if you don't, just grab your bank statements and start identifying stuff. You know who you pay for advertising. You know that you spent a lot of money on supplies at Amazon. So things like that should be easily identifiable. The only thing that I will warn is my 27A, and other expenses, try to stay out of that because the IRS already know what is acceptable for them. So let's stick in the threshold of what's acceptable for them, especially if you don't have a bookkeeping system or a bookkeeper or an accountant because things like that, if you're placing large ticket items in other expenses, it can trigger some unwanted attention and we don't want that. We just wanna get through this process as smoothly as possible. Take these categories and use them with your bank statements to identify which categories you are going to deduct. But this is essentially the way to deduct your business expenses, it is through Schedule C.

 Tax Season Tip #6: Know your forms (Part 2 - 3:58):

Tax season tip number six. And I know I'm going quick and I'm trying to get through this quickly because I have a ton of questions that I received before the webinar and I wanna get to those. So remember, if you have any questions, feel free to drop those in a chat and I'll get to those. Tax season tip number six, know your forms. These are just the really basic common forms that you will see when you're doing your tax season filing. Schedule C; For many of the Schedule C is your business tax return. I know people ask all the time, how do I file my business taxes as a sole proprietor, as a single member LLC? This is how you do it. You do it through Schedule C. You just add this simple form, nothing that's really simple, but you add this simple form and everything will flow over to your 1040. But remember that's only for someone with a sole proprietorship or single-member LLC. This is not the business tax return for everybody. So if you have an S-corp, we're talking about an 1120S. If you have a C-corp, we're talking about an 1120. If you're in a partnership, your partnership should file a 1065, but you will still have to file, and the same for the other companies as shareholders, you still have to file a 1040. The special thing about sole proprietorships and single-member LLCs is that Schedule C is placed in the site of your 1040. If you are a gig worker or just a content creator and you're like, okay, well how do I file my business tax return?

Remember you say you weren't a business, so you're not filing a business tax return, you're gonna use other income. However, if you did decide you were a business you'll use Schedule C. And on the Schedule C, I get a lot of questions about this. On the Schedule C, it asks for EIN, if you don't have it, you don't have it, no big deal, you're not gonna die. Just make sure you have your industry code, that is definitely required and it's free to get an EIN so you can definitely just Google that and go to the IRS's website and go straight through that. Don't pay for an EIN, I don't know why people do that. You don't have to pay for that. It's free. If you need some like advice or consultation, there are a ton of websites that offer that, but definitely don't pay for that. So that's the Schedule C. 

The 1099 NEC and the 1099 MISC, are income forms. You will likely receive the 1099 NEC as a business owner. That's the one you're looking for. The 1099 MISC was phased out. Some people still use it, they shouldn't. I know for people like Twitch creators, you guys receive royalties and because you receive royalties from business subscriptions, then you will receive a 1099 MISC. And I know people freak out like, what is this royalty? What do I do with it? Don't fret, it's not a big deal. It goes directly on the Schedule C as if it was a 1099 NEC. It's a royalty because you're getting paid for a subscription that happened and you're not actively making income. It's passive. So yes, it is a royalty. However, when it comes to tax purposes, it is income. So just put it on your Schedule C, just like normal.

Sometimes there is conversation around, oh well it's a royalty so it goes on Schedule E, it's not that type of royalty. This is a totally different type of royalty. So this will go on Schedule C. And the last common form that you should know about is the schedule SE. So that's the self-employment. On this form, you will report and calculate your self-employment tax as a gig worker or self-employed person. Self-Employment tax kind of goes by the wayside. You may pay estimated taxes, but estimated taxes isn't your self-employment tax. So this is a schedule that will calculate your self-employment tax for you. And this is just an image of form 1099 NEC. When you're looking at this form, you are looking for the income in box 1, that's usually where the income entailed. Take the information from these forms and place it directly into your tax return. Do not change the numbers, if something doesn't look right, reach out to the person that gave you this form and handle it in that manner. But until the person changes this because remember that person has already sent this form to the IRS. So until that person changes this, then you need to report it as it shows unless you have an accountant, accountants have a fancy way of changing forms, but as someone that's not an accountant, you're just like the self-employed person, do not change anything on this form.

And this is the form 1099 MISC, remember I just talked about royalties. So this is where royalties will be for someone like a Twitch person or someone that has subscription-based plans and receive royalties. And of course, this is a Schedule C. All this information that I talked about, income, goes on Schedule C. One thing I do want to know is if you are doing different types of businesses, so say for instance, you're a fashion designer, you make clothes, but also you fix cars, these are two different types of industries, you're gonna need two different Schedule Cs. You cannot combine that income on one Schedule C because remember you have to report your NAICS, which is your NAICS code, and your NAICS code changes. 

Q&A (Part 3 - 0:12):

Ro (Part 3 - 0:12):

Let's jump into Q & A. So what do you guys have for me?

Skylar (Part 3 - 0:16):

Awesome, thank you, Ro. We actually have a couple of questions for you, Ro. So the first one is, what deduction should I take to lower my tax bill?

Ro (Part 3 - 0:25):

So it depends on what you're doing because remember the only deductions you can take are those that are necessary and ordinary to your business. So let's go through a couple of examples. So someone that creates clothing, for instance, like you have an apparel brand, okay, now we're talking about you can do of course advertising costs because everything's an advertisement nowadays. So advertising costs and brand partnerships are advertising costs too. I wanna make that clear. Advertising marketing falls into that area. If you are buying clothing wholesale, you definitely can, that is actually a cost of goods expense. So that goes on a different line. You wouldn't deduct that. However, it does lower your tax bill. So make sure if you are an apparel brand, you are putting that cost of goods cost in there and you pay for photoshoots and things like that. 

In a photo shoot, I would categorize a photoshoot under expenses as well. So that's something that you can deduct as well. And these again, are generalizations based on just the IRS code and definitely stuff you can find online. If you are someone like a foodie or food blogger, now we're getting into a different realm because if you are just wearing clothes to go to a restaurant, you can't deduct that, that's not deductible. And I know people try to do that a lot and say it's a costume, it's not, it's your everyday wear. So you can't deduct that cause it's a personal expense.

Skylar (Part 3 - 1:55):

Awesome. So this one is from the chatbox. It says I have 1099 forms, not 1040. I make my income full-time gig freelance work. How do I make my company an official business so I can add to Schedule C?

Ro (Part 3 - 2:07):

Oh, no biggie. One, what's an official business? What's that? If I do something and I say it's a business, it's a business and you gonna have to argue me down or prove to me it's not a business. So you don't have to make it official to be able to deduct expenses. And so remember, you get these 1090s to go onto your Schedule C that goes into your 1040. So don't think that you don't have a 1040 because you do have a 1040, everyone has a 1040, doesn't matter what type of business you are. But if you want to form a business, you can definitely form a business. You can get your EIN, you can make sure you have everything in place. You can form a business through your state like make an LLC or C-corp, however you wanna do that. But don't feel the pressure to formalize a business in order to write off expenses. Because that was my first slide. You do not need to have to go through all that to write off your business expenses, if you don't formalize your business, you're what's known as a sole proprietor and a proprietor has just as much right to a business expense as someone that has an LLC or a C-corp.

Skylar (Part 3 - 3:15):

Awesome. And our next question is, I don't know how to pay my estimated taxes if I'm married and filing jointly, but I'm the only one who is self-employed. Do I have to submit payments using my husband's social security number?

Ro (Part 3 - 3:30):

It depends. Okay, so married filing jointly, your first thought is because I'm married filing jointly, then I have to submit my estimated tax jointly. You don't. You actually can submit your estimated tax as yourself and your husband can submit his estimated tax if he wants to. But if he's a W2 then that's not necessary. So you can do it either way. You can do it together. If you do it together, yes you will need his social security number, but you can definitely do it separately. And the awesome part about married filing jointly when it comes to estimated tax is there's something called safe harbor payments and Safe Harbor Payments is kind of complex but not really. One of the things about Safe Harbor Payments is if you make a reasonable estimate and the reasonable estimate is you pay the amount that you paid last year in taxes. So say this year, you probably made about 15 to 20,000 more and you had a tax bill last year of like 5,000. If you pay that then you are off the hook for 90% to a hundred of it. You can't just pay like a thousand dollars and think this works cause it doesn't. But if you pay that under those guidelines, then you're off the hook for penalties and interest. So remember you can pay estimated tax by yourself if you're married and filing jointly or you can just submit it all together under that Safe Harbor payment guideline. So make sure you Google safe harbor payments for married filing jointly.

Skylar (Part 3 - 4:59):

And our next question is, can I still deduct from my personal account as I don't have a business account or bookkeeping from the last expenses from my business?

Ro (Part 3 - 5:08):

Yeah, you can. Have the receipt somewhere, don't have to save it in a shoebox, take a picture of it. It's just easier to get through an audit or something of that type or even show an accountant cause some accountants nowadays, because there's been just so much tax fraud, like they are giving pushback on things, it's just easier to show like, oh well this is for my business bank account, this is where it originated from. So that's just easier. But if it's in your personal bank account, it is what it is. Just starting today, get a business bank account, but you can definitely still write it off even if you pay for it out of your personal bank account. I have a client that spends out of his personal bank account all the time, drives me mad, but it was definitely a business expense.

Skylar (Part 3 - 5:54):

And we have another question coming in asking how do you rectify having overpaid and underestimated quarterly taxes.

Ro (Part 3 - 6:02):

When you are doing your taxes it actually asks you how much have you paid in estimated taxes - it should ask you. And one thing I like to tell people is all tax software is not created equal. So make sure that the tax software that you're using makes you feel comfortable. So it should ask you how much in estimated tax payments have you paid throughout the year and you're able to input that and it'll show you if you're due a refund or if you owe more, if you are due a refund, it would definitely trigger and show you that you are due a refund. So you can definitely report those payments.

Skylar (Part 3 - 6:40):

And we have another question that just came in. Do you have any recommendations for low-cost business bank accounts?

Ro (Part 3 - 6:50):

<Laugh>, I hate to say it, <laugh> one of the I guess best bank accounts that I like to use. One, it's always great to use your neighborhood bank account. Always great. It puts money back into the community, it helps the bank do more things. So it's always great. However, if you're just looking for a national champ, someone that's been in the market forever, just go with Chase, safe and easy. Go ahead. You will have to formalize your business though, so you will need an EIN, Articles of Incorporation, things of that nature. So it's different at every bank but National Chase, of course. But if you're looking to stay within your community and build branch relationships, I will go for someone that's in the community.

Skylar (Part 3 - 7:34):

Another question we have for you is do I have to make quarterly tax payments on 1099 or can I wait till the end of the year to file?

Ro (Part 3 - 7:44):

Okay, so when you're talking about quarterly tax payments, you're not looking at your form but you're looking at your income. So for estimated tax payments, they say if you are going to owe at least a thousand or more in tax dollars, tax liability, then you need to make quarterly payments. If you wait till the end of the year, you're just asking for a bigger bill with penalties and interest. So just go ahead and pay quarterly if you can.

Skylar (Part 3 - 8:13):

Okay. And we only have time for one more last question. This one says, can you give me more information on what you touch on regarding the NAICS and separate forms for separate industries? If you are engaging in more than one industry, would you want separate LLCs for each of those?

Ro (Part 3 - 8:31):

If you're engaging in one or more industries, would you want separate LLCs? The clean and simple answer is gonna be yes. If you don't want to do that, you can open up something like a series or something like that, but you should consult an accountant. So that clean and simple answer is yes, you should open up more than one LLC. For each industry, each industry has a NAICS code and you could just Google NAICS. I'm pretty sure that's how you spell it. And the NAICS code identifies you and it identifies the industry that you're in. And you're going to need the NAICS code when you're getting an EIN. So if you have an EIN, you should know your NAICS code. But if you don't, you can just Google that. And when it comes to different forms, the forms aren't necessarily different per industry, they're different per structure. So if you have a business that's in the business of building cars versus a business that's in a business of a clothing apparel brand, then these are two different Schedule Cs. And they should have different forms from different providers or small business owners who you don't work for and who you've paid.

Skylar (Part 3 - 9:40):

Awesome. Thank you so much Ro for speaking with us today. That's all the time we have for questions. If you have any more questions or any topic suggestions, we would love to hear from you for any upcoming webinars, please send them our way by emailing us at hello@ComplYant.co, that's hello at C O M P L Y A N T.CO. And we hope to see you at our next webinar. Thank you, guys, so much for joining us today, and have a great day. See you soon.