Spill The Tax Tea To New ID Contractors & Freelancers

 Few of us ever test our powers of deduction, except when filling out an income tax form. ~ Laurence J. Peter

Currently, it’s Tax Season 2021. During this time of the year, some are ecstatic to anticipate a nice tax refund, while others dread paying a balance due to the IRS. Nonetheless, most people will prepare and file their annual income tax returns by the traditional due date of April 15. However, if you are new to instructional design (ID) and you are an independent contractor or freelancer, there are several important things you must consider when filing your income tax this year. Let me “spill some tax tea'' to you.

As previously shared on this Become an IDOL podcast, during my transitional period of becoming an IDOL, I worked as a tax professional for one of the major tax prep companies (and I still do as a side hustle...shhhhh!). When I filed my tax return recently, even with the increased earned income thanks to my current ID contractual job I gained late last year, I was able to get a tax refund instead of owing high tax payments. Thanks to my six-year-plus experience as a tax professional, all of this was done legally, according to the IRS rules and regulations. So, I would like to share an overview of three types of “tax teas” that helped me when I filed my tax return this year.

DISCLAIMER - Despite my “tax professional” status, I am not “credentialed” like a CPA, a tax attorney, and/or an Enrolled Agent. However, we are ALL registered as paid tax preparers who are required, by law, to adhere to all IRS rules and regulations.

 

If you were hired as an independent contractor or freelancer, when you file your income tax return, the IRS will treat you as “self-employed”. As a self-employed taxpayer, you are responsible for paying self-employment tax as well as income tax. If you receive a Form 1099-NEC (or, in previous years, Form 1099-MISC) for a work payment of at least $600, the IRS will view that money as business income, not wages. If you don’t receive any of those forms but receive a work payment of less than $600, you are STILL required to report that income to the IRS on your tax return. In other words, by law, it is IMPERATIVE that you include ALL business income on your tax return.

 

By law, it is also IMPERATIVE to include ALL business expenses on your tax return, which is a very good thing. Why? The IRS only imposed the self-employment tax to NET INCOME of $400 or more! To calculate the net income, you simply subtract your business expenses from your gross (business) income.

 

For ID contractors and freelancers, there are so many ordinary and necessary business expenses that you can and should include in your tax return. Some eligible ID-related business expenses include, but not limited to

  • Office supplies
  • Computer and peripheral devices (e.g., printer, scanner, webcam, microphone, external hard drives, etc.)
  • Software, including those with annual subscription fees like Storyline, Vyond, Canva, and Office 365
  • Multimedia assets (e.g., icon packs, illustrations, audio clips, and stock photos and/or videos)
  • Continuing education/training, like the enrollment fee for the IDOL courses Academy
  • Utilities, including internet services
  • IT repair and maintenance services
  • Legal and professional services
  • ID conferences (e.g., travel, meals, and registration fees)
  • Membership dues to ID professional organizations, like ATD and The eLearning Guild
  • Wages, particularly for hired subcontractors
  • Advertisements
  • Retirement
  • Insurance premiums
  • ...and much more.

NOTE - There are some rules and restrictions that apply to these business expenses. Consult with a tax professional when filing your tax return.

Lastly, there are special tax benefits for self-employed taxpayers, including the qualified business income deduction, the home office deduction, and income adjustment deduction of half of your self-employment tax. Some rules and restrictions apply to these tax benefits; consult with a tax professional.

 

As an ID contractor or freelancer, YOU ARE RESPONSIBLE for paying your own taxes, filing them legally, and submitting your tax return on time. In addition to reporting all business income and expenses, your tax responsibilities include the following:

  • Keeping records of all business income and expenses in a safe and secure place for at least four years. These records include, but not limited to, payment invoices, receipts, financial statements, calendars, and logs. These records also must be available to the IRS, if audited.
  • Paying quarterly estimated tax payments, if required.
  • Completing appropriate tax forms to file your tax return.

 

For more information, visit the IRS website and/or consult with a tax professional. Remember, tax season ends on April 15, 2021. So be sure you file your tax return before then or it will become NONE OF MY BUSINESS!

 

*sip tea* :)

By: Fe’Dricka Moore

Fe’Dricka is a former secondary science teacher who has successfully transitioned into an instructional designer. She enrolled in the IDOL Academy in June 2020 and landed her first IDOL job five months later. She is passionate about sharing her transitional story with other teachers seeking a career change. To connect with her, visit her LinkedIn page or her online portfolio.



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