Independent contractors, take heart: Tax Day doesn’t have to be painful
🌟Lee este artículo en españolAhh… tax season. It’s everyone’s favorite time of year. If you’re an independent contractor like I am, the prospect of filing your taxes can seem daunting at first, especially if you’re doing them alone.My first time filing taxes as a freelancer, I had a gnawing fear in the back of my mind that I might accidentally commit tax fraud. It sounds ridiculous, but it’s warranted; if you saw me try to solve any math equation above an eighth-grade level, you’d likely understand why I prefer to hire someone else to crunch the numbers. And luckily, getting assistance with your taxes doesn’t have to break the bank. It can even be free.For self-employed folks, tax season requires a level of organization that would make Marie Kondo proud. You should have received 1099-NEC forms from each client or customer who paid you more than $600 in 2024. They either send them virtually as a PDF or mail to your residence as a physical copy. These forms are for record-keeping purposes; the burden of filing them falls on the client, but it helps to have them all when preparing your taxes. Additionally, all self-employed individuals are required to file a Form 1040-ES (individual income tax return) along with a Schedule C to document any business income and expenses.Now here’s the fun part: you can write off most business-related expenses, including mileage, travel expenses, office equipment and the square footage of a home office. It turns out you don’t need to feel guilty for purchasing those swanky new business cards after all.“If you look at a Schedule C, which is the schedule that you would attach to your tax return as a small business owner, you can see the general categories of expenses that are eligible,” said Nathan Davis, vice president at Mile High United Way and overseer of their Tax Help Colorado Program. Other deductible business expenses include advertising, insurance and certain client-related meal expenses (Not lunch breaks with your coworkers, but meals with potential clients…here is a list I used for my own tax write-offs, for reference.)Some Commerce City residents have access to free tax preparation services every first and third Saturday leading up to Tax Day (Tuesday, April 15) courtesy of Anythink Commerce City, Tax Help Colorado, Mile High United Way and Adams County Health Department. The sessions are offered in English, Spanish and Arabic.Now, it can be tricky knowing how to appropriately categorize yourself or your business when filing, particularly if you don’t really have a “business,” in the traditional sense. But most folks don’t need to rush to register an LLC before April 15. In fact, choosing to file as a sole proprietorship or an LLC often doesn’t make much of a difference unless you’re running a brick-and-mortar business. “Even if you have an LLC, you can still be a sole proprietorship,” Davis said. “If you’re the only member of that LLC, most people are still going to file a Schedule C, which means the business income is associated with their personal income tax return.” Those considering whether to file as an LLC or sole proprietorship should seek guidance from a Certified Public Accountant or an attorney.It’s not necessary for everyone to work with a professional, however. Most online tax filing services like H&R Block are free to use, so if you’re experienced and comfortable with the process of filing taxes as an independent contractor, this might be your best bet to get them done without ever leaving the comfort of your own couch.For the not-quite-as-tax-savvy among us who want more personalized support, these same websites do offer options to work one-on-one with a tax expert who will file taxes for you, but they’re often expensive and sometimes have hidden fees that don’t appear until the very end. It’s also important to keep in mind that you are responsible for any discrepancies in your taxes, even if you were not the one who filed them.The IRS’s Volunteer Income Tax Assistance program provides virtually the same services as paid tax preparers but at no cost–provided the filer’s individual income is below $67,000. Tax Help Colorado offers 50 free tax prep sites across the state of Colorado as well.Naturally, there are some limitations to what free tax programs can handle. Advanced preparation is key to getting the most out of free tax filing services. “If someone has a net loss on the business, we can’t do that return. If they had more than $30,000 of business expenses, we can’t do that return,” Davis said. Additionally, if a business has inventory or cost of goods sold, it falls out of scope for free programs like VITA.Self-employed people can also owe taxes at the end of the year. This is primarily due to the “self-employment tax”, which covers Social Security and Medicare. When someone is a W-2 employee, these taxes are withheld throughout the year and split between the employer and the employee, according to Davis. “This can be especially jarring the first time someone files taxes while earning a significant portion of their income via self-employment,” he said. “If the entrepreneur owes more than $1,000 at the end of the year, they are also assessed penalties and interest for not making quarterly payments throughout the course of the year.” To avoid this, independent contractors should make estimated payments via Form 1040-ES throughout the year.If you weren’t aware of the self-employment tax and worry you made a mistake, it’s not the end of the world. It just might mean you owe a fine to the IRS, which can be paid in installments. Rest assured, you didn’t accidentally commit tax fraud. And, of course, gathering and sorting through records takes time if they haven’t been tracked throughout the year, so keep that in mind moving forward.For those who are comfortable filing on their own but need a bit of guidance, Davis recommends MyFreeTaxes.com, a program of United Way Worldwide. “They offer some really helpful PDF guides for different types of entrepreneurs and business owners, and those are offered in English and Spanish,” he said. The site includes guides specifically designed for small business owners, gig economy workers, and home-based childcare providers.The main benefit of paying out of pocket for a private tax professional is the ability to have virtually unlimited time with them. If business-related purchases, mileage, or other expenses haven’t been tracked throughout the year, private tax professionals can help – so long as you can afford their hourly rate. “Tax preparers are not bookkeepers,” Davis said. “If folks can come as prepared as possible, it will make things a lot easier and more efficient.” If you haven’t been keeping track of everything perfectly, you’re not alone. It may seem like a lot, but it just takes setting aside some time for a spring cleaning. For one, that pile of crumpled receipts from various gas stations that’s been sitting in your glovebox for a year might be good for something! Just take it one step at a time; measure your office space in square feet, go through old bank statements, and get your hands on those glovebox receipts to estimate the miles driven for work-related purposes. (Maybe clean out the candy wrappers while you’re there, too.)For those who qualify for free tax help through VITA, volunteers will file their tax returns on their behalf, though filers are still ultimately responsible for any errors or omissions. Commerce City locations for free tax preparation are almost always staffed with Spanish-speaking volunteers, and in cases where no bilingual tax preparers are present, a language line is available.Tax assistance resources can be found at tax.colorado.gov, myfreetaxes.com/taxguides and myfreetaxes.com/es/guiasdeimpuestos for Spanish resources. Additionally, individuals can dial 211 on a landline phone for tax assistance information.The post Independent contractors, take heart: Tax Day doesn’t have to be painful appeared first on Colorado Community Media.
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