Zoom Call with Coffee
Montgomery, Chris. “Zoom Call with Coffee.” Unsplash, Unsplash, 29 Apr. 2020, unsplash.com/photos/smgTvepind4.

Working from home can be a dream come true, especially if you also work for yourself! Opportunities for freelancers, gig workers and other self-employed workers have exploded in recent years, giving people the freedom they crave without sacrificing the income they need. Work from home culture has become even more prevalent with the current COVID-19 situation affecting millions of Americans. Many are now commuting from their bedroom to the dining room table for a Zoom call!

Although the freedom and flexibility of working from home can be intoxicating, it also warrants an unwelcome hangover. Tax issues can make working from home less attractive and more expensive. Dealing with such tax issues often leaves many gig workers, new freelancers, and small business owners frustrated. However, if you are careful and plan ahead, you can reduce the tax headache and enjoy the perks of working from home!

Young Troubled Woman Using Laptop at Home
Piacquadio, Andrea. “Young Troubled Woman Using Laptop at Home.” Pexels, Pexels, 17 Feb. 2020, www.pexels.com/photo/young-troubled-woman-using-laptop-at-home-3755755/.

So, let's jump into some best practices for keeping your tax records clean in case the IRS comes knocking on your door! Here are some key things to know before the tax man comes calling.

Gather Contact Information from Your Clients

Work from Home Tax Forms
Samkov, Ivan. “Person Writing on a Notebook.” Pexels, 25 Apr. 2020,
www.pexels.com/photo/person-writing-on-a-notebook-4238524/.

Whether you are preparing sales brochures for local businesses, designing websites for new start ups or putting together dozens of individual side hustles, it is important to have contact information for every client.

The typical freelancer may have dozens of clients in a single year,and being able to contact them is an essential part of doing business. So go through your email lists, sort out your invoices and create a database of addresses and telephone numbers. Hopefully you will receive all your documents on time, but if not, that contact information will help you track down the missing paperwork.

Store Electronic and Paper Copies

The old saying "better to have it and not need it than need it and not have it" is doubly true when you are self-employed. For gig workers, freelancers and other self-employed individuals, the loss of a single tax form could delay filing for months and even trigger an audit by the IRS.

That's why it is so important to maintain redundancy in your document storage. A good habit to get into is to remember to scan each 1099 form as it is received and store those forms on a hard drive, cloud account and offline storage device. It also means making paper copies of those critical documents and storing them in a safe place. These tax forms will be important when the tax filing deadline rolls around,so make sure you have them when you need them.

Keep Your Own Ledger

Tax Statement Form
DeLawrence, Olga. “Photo by Olga DeLawrence on Unsplash.” Unsplash, Unsplash, 10 Apr. 2020, unsplash.com/photos/5616whx5NdQ.

In a perfect world, every freelancer and at-home worker would receive all the tax forms they need. But, that perfect world is the exception and not the norm. If you want to be ready for tax time and avoid unwanted "entanglements" with the IRS, you need to keep your own ledger.

Having your own records to back up your earnings estimates will help you in many ways, from qualifying for lower cost health insurance to getting a jump start on your tax return. It may be a little extra work, but keeping your own ledger will pay off in the long run!

Check Off Each Form As It Is Received

Income Tax Form
Buissinne, Steve. “Photo by Steve Buissinne on Pixabay.” Pixabay, 21 Oct. 2014,
pixabay.com/users/stevepb-282134/.

Now that you have your ledger in hand (or on your computer), you can cross reference your records and check off each 1099 form as it is received. When you have crossed the last form off your list, you can start filing your taxes and get the refund you deserve.

Be sure to scan each form as you receive it and make several backup copies. Having this documentation on hand will make your life easier should the IRS question part of your return or request additional information about the income you are claiming.

Reduce Your Tax Liability with a Solo 401(k) or SEP-IRA

SEP IRA
Simf, Fabrika. “Photo by Favrika Simf on Shutterstock.” Shutterstock, Shutterstock, 2020, www.shutterstock.com/image-photo/pension-concept-plans-1075664873.

Many new freelancers and gig workers are surprised at the high taxes they are required to pay, and the self-employment tax can be a particularly devastating blow. This extra tax is assessed to self-employed individuals, and it can have a big impact on members of the gig economy.

You may not be able to eliminate the self-employment tax, but there are steps you can take to keep your tax liability to a minimum. Retirement plans for the self-employed are among the most generous around, and opening a solo 401(k) or SEP-IRA could allow you to shelter tens of thousands of dollars in income!

These self-employed retirement plans do require some setup and a fair amount of paperwork, but once in place they can be used year after year to reduce your tax liability, so you can keep more money in your pocket and send less to the IRS.

Being self-employed and working from home can be wonderful, but it is important to be prepared for the realities. One of those unpleasant realities is taxes, and keeping track of your work at home tax forms will be critical as you make the transition. The tips listed above can help you keep proper records, stay on the right side of the IRS and even reduce your tax liability.

It’s important to note that the IRS is increasing enforcement in the coming months and even years after this pandemic. More small businesses and independent contractors are going to find themselves getting letters from the IRS requesting more information or stating that they owe money to the IRS. If you have any tax trouble or owe more than $10k to the IRS or state but can’t pay in full, contact our firm today.

OWE BACK TAXES?

Our firm specializes in tax resolution. We serve clients virtually so don’t hesitate to reach out. If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm and we’ll schedule a no-obligation confidential consultation to explain your options to permanently resolve your tax problem. Call us at (855) 605-1500 or send us an email at [email protected]