By Terry Jones, CPA

Still haven’t filed your taxes? Well, you better get moving! April 15^th is right around the corner, and you know how those deadlines can sneak up on you! Are you the organized type who has everything neatly categorized and ready to go, or are you more the "I’ll deal with it tomorrow" type who is only vaguely aware of those 1099s that have been arriving steadily in the mail in the last few weeks? Either way, it’s time to get down to business and either hammer that return out or turn things over to your favorite accountant.

Ok, so how do you start? First, make your paperwork easy to deal with. Lots of people in our business have several sources of income – perhaps income from a "regular" job as an employee, plus freelance income from those miscellaneous projects that you did during the year. You have probably received year-end tax-reporting statements from several sources. Wages will be reported on Form W-2, freelance income on Form1099-Misc, plus you may receive additional statements for interest, dividends, year-end brokerage account summaries, etc. All of these documents are important and represent income that has been reported to the IRS. They may also show withholding of federal and state taxes, as well as social security taxes. Put them all in one file or large envelope so you have them together.

Some projects will treat you as an employee and give you a W-2, whereas others will treat you as an independent contractor and issue Form 1099. You must report each type of income separately on your tax return. With respect to free-lance income, payors are required to file a Form 1099-Misc when payments for the year exceed $600. However, just because you did not receive a Form 1099 from someone you performed services for does not mean that you are not taxable on the income. Some people think that independent contractor income is not taxable if it is under $600 from one payor. This is NOT correct. All independent contractor income is taxable, regardless of the amount, and should be reported, even if you did not receive a Form 1099.

Self-employment income from freelancing is also subject to self-employment taxes, so it is important to ensure you are making estimated tax payments or that your withholding from employment related jobs is sufficient to pay your taxes due and protect you from underpayment penalties. If you haven’t done so, then make a promise to yourself to keep up with your tax payments due during the year so you won’t have an ugly surprise waiting for you when the 2003 tax return is due.

If you kept your financial records in a checkbook or in Quicken or a similar program, review your income and expenses for the year to identify anything that may be tax related. To substantiate your deductions, it is important that you have receipts and other documentation supporting the deduction. If you haven’t done a great job of this in 2002, then you can resolve to set up a system and do better in 2003!

The IRS allows taxpayers who are self-employed to take deductions for expenses related to their business. However, the IRS is also quick to question whether someone is really in a business, or just doing something for fun, more as a hobby. This is a big issue for the freelance production community. If you want to be able to deduct expenses relating to your production work, then it is critical to approach your activities as a business. Factors the IRS looks at in making this determination include how did you market yourself, i.e., business cards and advertising, as well as your professional qualifications, training, investment in equipment, accounting records, etc.

Assuming you are truly in "the biz", then there are a number of deductions that you may be entitled to. These include costs of dues to professional organizations, classes, workshops, mileage, travel costs, etc. For car expenses related to business use, you have a choice of using a standard mileage deduction or calculating actual expenses and deducting the business portion. In either case, you need to have documented your business miles. On your tax return, you will be asked for total miles, commuting miles and business miles. Remember, miles going to and from your regular job are considered commuting and are not deductible. However, if you work two jobs, or do freelance projects, then your miles to the second job or freelance projects would be considered business miles. Simply keeping a notebook in your car and jotting down the date, your mileage and the business purpose of your trip will go a long way towards protecting your deduction. In fact, you are required to state on your tax return whether or not you kept a written record of your business use of the car.

That’s enough for right now. In the coming months, we will look at other aspects of tax and financial planning. If you have specific questions you would like answered in future articles, please submit them to Terry Jones at (703) 671-7050 or by email at terry@terryjonescpa.com.

Terry Jones is a CPA and registered investment advisor specializing in tax and financial planning for individuals and businesses. She is a supporter of the arts, and offers "starving artist" rates to artistic, creative souls who might not otherwise be able to afford a CPA. Terry can be reached at (703) 671-7050 or by email at terry@terryjonescpa.com.

Copyright 2003 by Terry Jones, CPA. This article may be forwarded or reprinted without permission as long as it is kept whole and intact and proper credit to the author is given.

Back to Top