I really hate paying for things I know I can do. I paid over $700 last year to have my business’ taxes filed and there was still something bothering me about the service. I felt like I was still doing the brunt of the work!
So this year, I decided it was time to go back to doing my taxes myself with the help of some online software.
I decided to pretend it was a game of sorts – make it fun – and just do what I could, a little at a time and fill in some blanks every day. I was not going to allow taxes to frustrate me, make me angry, cause me to yell, and maybe most importantly, worry.
It took me a little bit longer than I thought it would but not any longer that what I would normally do while preparing for the tax prep service. This year’s time spent also included 2 calls to one of the online CPA’s for assistance and clarification.
Interestingly, I did not hate it… completely. Yes, OK, there were a couple of times when I did say out loud, “I hate taxes.” But does anyone really like them?
The bottom line was that my experience was not awful and I did learn some cool stuff. My business is definitely going to benefit from my experience. I am excited about that!
A Shocking Mistake That Could Be Killing Your Taxes
The other thing that was bothering me about my tax service was that I never felt like they knew me or my business. And that was worrisome in itself.
As it turns out, I was right to be concerned. As I collected my data this year, some of it appeared to be duplicated. And I remembered a fleeting question about this same thing and a hand written note where I had questioned this from last year as I turned in all my documentation to the service.
Then I came across another area where questions started popping into my head. So I asked a number of questions and confirmed 2 areas within our taxes that I am relatively certain to have been incorrect for at least the last 2 years.
Let me explain. Here are the details and circumstances of what I found.
Ninety-nine % of all the income that is paid to my business is collected through PayPal. Mind you, this is not about what is good or bad practice regarding how one collects their income. There are pros and cons to every method. What IS important to know though, is that at the end of the year, PayPal provides you with a 1099-K. This report indicates ALL of the income you collected through the PayPal service – including services, products, commissions and any income I have received from being contracted by other companies or individuals who have paid more than $600 during the year. on a nifty, and easy to read form. Very convenient, right?
Yes but… we’ll get to that later. For now, let me continue with some of the other documentation that freelancers should be receiving to use to prepare your tax return in the United States.
Freelancers should also be receiving 1099-MISC forms from anyone with whom they received more than $600 income from during the year. so, each year, in an effort to assist them to do what they are supposed to do, I send my long time customers that fall into this category a W-9 with all of my information right after I send my tax return. This way I know that it has been completed. Granted, ninety-nine percent of the time I get another request for my information come the following January, but at least I know I have the correct and updated information available and saved in the same location on my computer each year for quick access. I can also review my own records at this time and send out my W-9 to anyone that is a new customer in this category. It’s also a great reminder to review any of my own required 1099-MISC forms that I may need to send to the freelancers I outsource to.
On with the story. So, now I have documentation now from PayPal and documentation from people who have paid me more than $600 in one year. As I am preparing my taxes, I am required to input the information from these documents into the online form. This is where the “yes but…” comes in. If I enter all of the information as provided there is a glaring discrepancy.
The 1099-K includes the income that I have on the 1099-MISC. This means if I enter the 1099-K “as is” on the form, the tax form data makes it appear like my business is making more money than it actually is. The income from the 1099-MISC forms is being entered more than once!
I really do not want to pay taxes on my income more than once.
This might not seem like a big deal until you start receiving five, six, seven 1099-MISC forms from your clients or even more alarming if the amount on each 1099-MISC is substantially more than the minimum $600. Think about this – EACH 1099-MISC is at least $600 of income! With five forms, that is over $3000 you’d be claiming as income – taxable income! I don’t know about you but, as a relatively small business, I really do not want to pay taxes on my income more than once.
In any case, I just thought this an interesting discovery and something I thought some of my freelance friends may not have known, recognized or shared with their CPA’s or whoever helps them with their taxes. It had been something that had been weighing on my mind that I had shared in the past with our tax preparer but never really got clarification about. This year and in doing my own taxes, I KNOW it was taken into consideration and saved me well over the $3000 income duplication I used as an example.
Plus, I got to get to know what deductions I should really be paying attention to and how to better track and document what I need to be able to use them. Whether you prepare your own tax returns or have an accountant do it, keep your eyes peeled for these 10 frequently missed tax deductions.
How Much Fun Were Your Taxes?
This year, I am feeling rather empowered and confident about my return. I am happy to more fully understand the moving parts of my business that the tax return process provided me.
My guess is that most freelancers simply don’t want to do their own taxes and would rather just let someone do it for them. And I would not really disagree as long as you really know what your return is really saying and where your numbers are coming from.
What do you think? Would you simply rather have someone else prepare your taxes for you? When you review your prepared return how sure are you that it was entered and correctly calculated? Do you feel preparing your own taxes too risky as an online business owner? Or do you prepare your own taxes as a freelancer?