This post contains an Ambassador link for QB Self-Employed, which will give you 50% for 12 months. That’s just $5.00/month to start!
Whether you’re a 100% freelancer or just a part time side-hustler, you’re likely going to be facing some 1099s around this time of year.
My first exposure to the world of 1099s was when I “donated” eggs over a decade ago (when my eggs were young and desirable). I put donated in quotes because while the eggs themselves were technically a donation, I was compensated for my time and suffering. Yes, there was a lot of suffering.
The 1099 on $7,000 of income led to a surprise tax liability of around $1,500. It was a surprise because it had not occurred to me, or my dad (who was still doing my taxes for me) that compensation in that form would be considered income. Well, surprise! Everything is considered income.
My next exposure to 1099s came when I started to win more prize money here and there in road races. Anytime I cracked the $600 mark by an organization, cumulative over the year (for example, multiple peanuts from NYRR prize money races), I would get a 1099. What’s funny about that is that the IRS really doesn’t want you to claim road race prize money as a "job," but they’re more than willing to take your “income” taxes from it. I personally consider winning money in local road races to be as much of a side hustle as anything else, just make sure you don’t deduct expenses to the point of a loss. At least not multiple years in a row.
Now, nearly all of my income comes with a 1099. There are upsides to this, and there are huge pitfalls.
I’ll going to start with the biggest huge pitfall - paying estimated taxes. Cutting an estimated tax payment every quarter is so much more painful than having it taken out of your paycheck. If you can get some of your income on a W2, even if you’re a freelancer, I highly recommend it. It’s just better to never see the money.
If I have a W2-type paycheck coming in, I always take 0 deductions and sometimes have them withhold extra money to compensate for other freelance income.
However, if I'm not in a situation where I can have money taken out pre-deposit, I use the Intuit self-employment app to keep track of all of my income and expenses throughout the year. It also takes my life situation into account (number of dependents, etc) and calculates my estimated quarterly payment based on what it projects my year to look like each quarter. I highly recommend using this app and I highly recommend paying those quarterly taxes, because paying for the entire year in April is even more painful than paying quarterly. My Ambassador link will get you 50% off for 12 months ($5/mo).
If you drive for work - whether you’re an Uber driver or just driving to client sites, that app also has a built in mileage tracker that works great and will save you a ton when you deduct your mileage from your taxes.
This app tracks your expenses when you link your credit cards and bank accounts to it. If you have just a business card with all your expenses, great. If you use multiple cards, including personal, for business expenses because it helps you maximize your airline miles, then you just do some Tinder-style swipe left and swipe right for personal or business expenses.
You can also take a snapshot of your receipts and keep them all in the same app. This is great in case you ever get audited and the IRS doesn’t agree with you just sending in credit card statements.
However, I am currently using ReceiptPal and Receipt Hog to store my receipts because they award points for sharing your expenses, which you can then turn into gift cards or cash, depending on the app and point level. These apps are essentially paying you to provide them with your spending habits so they can sell this data to whoever would benefit from knowing your spending habits. It’s a very small amount of money, but I’m never one to turn down a $5 Amazon gift card here and there.
I cannot emphasize enough the value of keeping track of your expenses throughout the year and the benefits of having an app that greatly facilitates this process. At tax time I use Turbo Tax self-employed and it literally imports my app data with one button push.
And then I wait for my husband to sift through his credit card statements in order to create a spreadsheet of his annual expenses, which he has, in the past, concluded at 10pm on April 15th. What can I say, opposites attract.
Pro tip: the IRS uses Pacific Time to time-stamp your return, which is clutch when you live on the east coast and marry a procrastinator.