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Tax Topics for Freelancers, Contractors, and Consultants

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Tax Topics

Tax Topics

As a freelancer, independent contractor, or consultant, you have a variety of tax issues to consider — including ways to trim your tax bill.

Tax-saving opportunities for the self-employed

Many people are career freelancers. Others find themselves doing freelance work after a corporate downsizing or other job loss.

Although being a freelancer, consultant, or independent contractor provides a new set of tax issues to consider, it also offers you plenty of new ways to trim your tax bill.

If you are paid $600 or more for your work for any individual client, you should receive a 1099-MISC from your customer. And, yes, the IRS gets a copy, too. Typically, you include Schedule C with your tax return to report the self-employed income – along with the deductions for your business expenses.

And if your net earnings from self-employment exceed $400, you will have to pay self-employment tax (for Social Security and Medicare), which is figured on Schedule SE. You deduct one-half of that SE tax as an adjustment to income on Form 1040. And if you have employees or use independent contractors in your business, you will have to file W-2 or 1099 forms for them.

Don’t miss these tax-saving opportunities:

Set up a home office and maximize your write-offs

If you regularly and exclusively use a portion of your home or apartment or use a separate structure not attached to your house as your principal place of business or as a place to meet with clients, you can claim deductions for using the space.

Your office qualifies as a principal place of business if you use it as the sole place to perform administrative duties. Expenses that may be deducted include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, painting, repairs and depreciation. The amount of the deduction depends on the percentage of the home or apartment that is used for business. The write-off is claimed on Form 8829, and is deducted on Schedule C. Thus, it reduces your SE income and tax.

Open a retirement plan to shelter your business profit

The two most common self-employed retirement plans are a Simplified Employee Pension plan (SEP) and a Keogh plan. In either one, you can put in up to 20 percent of your net earnings from self-employment, which is your net Schedule C profit minus the deduction for one-half of your self-employment tax. The maximum annual contribution for 2014 is $52,000 in 2014.

Compare that to the $5,500 cap on IRA contributions ($6,500 if you are 50 or old at year end) for 2014. A SEP can be established for 2014 as late as April 15, 2015, or if you filed an extension, October 15, 2015.

There are two drawbacks for Keoghs:

  1. A Keogh plan must be established by Dec. 31, 2014 to accept contributions for 2014.
  2. If you have employees, they may be eligible to have Keogh contributions made for them.

Deduct your mileage

Employees are not allowed to deduct the cost of driving to and from home to work. But if you are self-employed and your home is your principal place of business, you can deduct the cost of driving from home to see a client or to go to another work location.

You can claim 56 cents per mile for 2014, plus the cost of parking and any tolls you paid. Be sure to keep a record of your business driving or the IRS can deny your deduction on audit.

Combine business with pleasure when traveling

If you fly on a business trip to another U.S. city and spend a few extra days there as a vacation, you can deduct 100 percent of your airfare as long as the number of days spent on business is more than your vacation days. In other words, the main purpose of the trip must be for business. Your other out-of-pocket expenses, such as lodging, hotel tips and 50 percent of meals, can be deducted for the business days only.

Expenses for the personal days generally are not deductible. There is an exception if you spend an extra day or two away to get a cheaper airfare for a Saturday night stay over. If your added cost of meals and lodging for that period don’t exceed what you saved in airfare, those costs (the hotel bill plus 50 percent of meals) can be deducted as business expenses.


 Tax TopicsSee Also: Top Tax Write-offs for the Self-Employed, Home Office Deduction Guide


DEFINITION OF ‘QUARTERLY EARNINGS REPORT’

A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net income, earnings per share, earnings from continuing operations and net sales. These reports follow the end of each quarter. Most companies file in January, April, July and October.

QUARTERLY EARNINGS REPORT EXPLAINED

An earnings report is a ‘report card’ of sorts for a public companies. It is through these reports that companies let shareholders know how well they have performed over the past time period. Most often the key metrics – net income and EPS – are weighed against the previous years’ numbers. By analyzing this comparison, investors can begin to gauge the financial health of the company and whether or not it deserves their investment.


Fiscal Dates

In some situations, a date field needs to be expressed in terms of an organization’s fiscal year. Calendar years run from January 1st until December 31st, but an organization’s fiscal year might start in a different month. For example, a company’s fiscal year might run from June 1st through May 31st. In such cases, it’s appropriate to display some date values in a view using fiscal equivalents (Fiscal Year, Fiscal Quarter, and Fiscal Week Number) rather than their calendar equivalents.

To express date fields in fiscal terms, follow these steps:

  1. Control-click the data source in the Data window to open the Date Properties dialog box.This change affects the fiscal year for all date dimensions in the data source.
  2. Set the Fiscal year start field to the appropriate month.
  3. Control-click the date dimension in the Data window and select Default Properties > Calendar Type > Fiscal Calendar. This option is only available on fields that are classified as date dimensions.

Whether a given level of a date dimension is affected by the use of the Fiscal Calendar depends on the specific case. Consult the following table:

Date Level When Converted to Fiscal
Year Reflects the fiscal year. For example, if Fiscal year start is set to April, the year for the date June 1, 2004 would be shown as FY 2005.
Quarter The Quarter reflects the fiscal quarter. For example, if Fiscal year start is set to April, the quarter for the date June 1, 2004 would be Q1.
Month No change in behavior. The calendar month is the same as the fiscal month.
Day No change in behavior. The calendar day is the same as the fiscal day.
Hour No change in behavior. The calendar hour is the same as the fiscal hour.
Minute No change in behavior. The calendar minute is the same as the fiscal minute.
Second No change in behavior. The calendar second is the same as the fiscal second.
Week Number The Week Number reflects the fiscal week number. For example, if Fiscal year start is set to April, the week number for the date April 1, 2004 would be 1.
Weekday No change in behavior. The calendar weekday is the same as the fiscal weekday.
MM/YYYY No change in behavior. This date format always displays calendar dates, even when a fiscal year has been assigned.
M/D/Y This date format always displays Calendar dates, even when a fiscal year has been assigned.

The only date levels that explicitly indicate that the fiscal calendar is in use are the Year and Quarter level. Specifically, fiscal years and quarters are shown with the FY prefix. This is not true for fiscal quarters or week numbers, however, which are not shown with any special fiscal markings.

Fiscal year designations for any given date dimension are applied to all instances of the field in the Tableau workbook. Fiscal dates can only be applied to dimensions in a relational data source.

Fiscal year formatting is applied to all date formats that include a year, or a year and a quarter. In particular, if you apply a custom date format, and only use the “y” and “q” placeholders, then FY will be prepended to each year.

Date Truncations

When a date dimension is using a fiscal calendar, only the following date parts and truncations will reflect the fiscal calendar:

Date part or truncation When using a fiscal calendar
Year date part Reflects the fiscal year. For example, if Fiscal year start is set to April, the year for the date June 1, 2004 would be shown as FY 2005.
Quarter date part Reflects the fiscal quarter. For example, if Fiscal year start is set to April, the quarter for the date June 1, 2004 would be Q1.
Week Number date part Reflects the fiscal week number. For example, if Fiscal year start is set to April, the week number for the date April 1, 2004 would be 1.
Year date truncation Truncates to the start of the fiscal year. For example, if Fiscal year start is set to May, the date June 1, 2004 would become May 1, 2004.
Quarter date truncation Truncates to the start of the fiscal quarter. For example, if Fiscal year start is set to July, the date June 1, 2004 would become April 1, 2004.

 


Fiscal year

From Wikipedia, the free encyclopedia

A fiscal year (or financial year, or sometimes budget year) is a period used for calculating annual (“yearly”) financial statements in businesses and other organizations. In many jurisdictions, regulatory laws regarding accounting and taxation require such reports once per twelve months, but do not require that the period reported on constitutes a calendar year (that is, 1 January to 31 December). Fiscal years vary between businesses and countries. The “fiscal year” may also refer to the year used for income tax reporting.

Some companies choose to end their fiscal year on the same day of the week, such day being the one closest to a particular date (for example, the Friday closest to 31 December). Under such a system, some fiscal years will have 52 weeks and others 53 weeks. A major corporation that has adopted this approach is Cisco Systems.[1]

Nevertheless, the fiscal year is identical to the calendar year for about 65% of publicly traded companies in the United States and for a majority of large corporations in the UK[2] and elsewhere (with notable exceptions Australia, New Zealand and Japan).[3]

Many universities have a fiscal year which ends during the summer, both to align the fiscal year with the school year (and, in some cases involving public universities, with the state government’s fiscal year), and because the school is normally less busy during the summer months. In the northern hemisphere this is July in one year to June in the next year. In the southern hemisphere this is January to December of a single calendar year.

Some media/communication based organizations use a broadcast calendar as the basis for their fiscal year.

The NFL has a term, “league year,” which in effect for the league’s fiscal year. By rule, the fiscal year begins at 4 PM EDT on 10 March of each calendar year. All financial reports are based on each fiscal year. However, the fiscal year is denoted in the NFL by the year where it starts, not where it ends, unlike most designations.

The fiscal year is denoted by the year in which it ends, so United States of America federal government spending incurred on 14 November 2014, would belong to fiscal year 2015, operating on a fiscal calendar of October–September.[4]