- Tax Day 2019, the last day to file your 2018 tax return, is Monday, April 15.
- If you work more than one job, especially if you’re a contractor, extra planning can help you avoid tax hassles.
- Don’t be afraid of self-employment taxes. They aren’t as scary as you think.
- If you worked as a contractor, you’ll have 1099 income, where you owe all the taxes. If you have W-2 income, aka payroll, your employer will have taken taxes out — but maybe not enough.
Whether you drive for Uber to earn a little extra cash or you’re a full-time freelancer, you won’t be able to whip through a 1040 Form in 15 minutes.
When you work multiple jobs your tax picture is more complicated than when all your income is on one W-2. It can seem overwhelming to figure out how much you should have withheld from your paycheck if you receive more than one. Navigating estimated taxes so you don’t pay too much or too little can be tricky.
I’ve worked more than one job most of my adult life. Over the years, I’ve picked up some best practices that make my tax time low stress. But first I made a dumb mistake.
I messed up my taxes and had to pay back my refund, plus interest and penalties
Managing my taxes is second nature now, but I made a big mistake the first year I switched from a full-time job to multiple part-time gigs. That mistake taught me valuable tax prep lessons.
I had about five different gigs that year. They were all W-2 employment, but each job treated my salary as if that was my only paycheck and deducted taxes at too low a rate. Because of this, I should have owed taxes on April 15.
When I filled out my tax return, however, I came up with a refund. Instead of checking my math (I know, duh), I filed my return and cashed the IRS check.
Three years later, I got a notice that I didn’t report one of my W-2s. I had to pay back my refund, plus additional taxes, plus three years of interest and penalties.
I was pretty broke at the time and my first reaction was to freak out. I took all my courage to contact the IRS. I argued that I shouldn’t owe the penalty since I had attached the W-2 and hadn’t tried to cheat on my taxes. The IRS agreed and allowed me to pay in installments, even though the amount I owed was less than the payment plan minimum.
I learned that the IRS is more bark than bite. The agents were helpful and worked with me to resolve the situation.
You don’t have to have a run-in with the IRS to get smart about your taxes. Here are some tips for organizing your financial life to make tax time easy.
Adjust your withholdings
When I fill out a W-4 for a part-time job, I declare zero dependents so more tax will be taken out. That keeps me from underpaying.
Record your earnings
Every time I get a payment, I record it in a spreadsheet. At the end of the year, I have a record of what I earned from each client or gig.
If you earned less than $600 from one client, they don’t have to give you a 1099. The IRS expects you to report that income, though, and pay taxes on it. So, keep good records.
Don’t rely on gig work platforms for tax documents
Hiring platforms like Upwork and Fiverr don’t have to provide tax paperwork unless you earn more than $20,000 and have 200 transactions through the platform. The clients who hired you don’t have to prepare 1099s either. The same rules apply on any other sites considered Payment Settlement Entities.
Get a printout of your income and fees (which are tax deductible) from your gig platforms at the end of the year.
Save your business receipts
If you work as a contractor, you should take deductions against your income. These include business expenses such as travel, office supplies, continuing education, and car expenses. The best tax advice anyone ever gave me was to take every deduction I could take legally and not worry about getting audited.
Pro tip: save your receipts (paper or electronic) for at least six years, so you can prove that your expenses are legit if the IRS ever asks.
Do your own taxes
Full disclosure: I do not do my own taxes anymore. But I used to, and it was valuable experience. It’s important to understand how your taxes work so you can spot problems in your tax preparer’s work. Schedule C isn’t rocket science.
You know your finances better than anyone, so you should be able to double check your tax preparer’s work. I’ve been able to find additional deductions and catch mistakes, which has saved me money on my taxes.
Pro tip: You can use free tax software to file a basic business tax return.
Source: Business insider