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Self-Employed or in the Gig Economy? Why the Difference Matters for Taxes by @DeborahSweeney

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Unless you happen to fall into one of the two categories, you may not know the difference between self-employed professionals and gig economy workers. According to the Second Annual Self-Employment Report released by accounting software company FreshBooks, these two groups are often categorized as a single entity despite their differences. Self-employed professionals are defined as having a primary income that comes from independent, client based work. Members of the gig economy, on the other hand, work side gigs such as rideshare driving or freelance writing in addition to maintaining a traditional full-time job. Their primary source of income is the paycheck from their full-time position, with side hustles bringing in a little extra money.

With 27 million Americans estimated to exit traditional employment for self-employment by 2020, defining the difference between the two groups has become crucial for tax purposes. As you work on filing tax returns, here are the key areas for both self-employed professionals and gig economy workers to keep in mind.

Make sure you have been properly classified

Both self-employed and gig economy professionals must be properly classified for the services that they provided. The IRS states that business owners must correctly determine if these individuals are employees or independent contractors (AKA self-employed).

Self-employed individuals are in business for their own self and therefore do not have businesses that withhold or pay their taxes. Businesses that work with gig economy professionals use common law rules to determine if these workers are employees or independent contractors. The major three factors are behavioral (control, or not, as to how the worker does their job), financial (if there are business aspects of the worker’s job controlled by the payer), and their relationship type (such as written contracts).

Once these three factors have been examined, businesses will have contractors complete and file the appropriate forms like Form W-9 or Form 1099-MISC to pay their associated taxes.

Determine if you will need to pay estimated taxes

Paying estimated taxes is a tax strategy that self-employed professionals and members of the gig economy may consider doing, if they haven’t started already. Estimated tax payments are used by taxpayers to pay income and self-employment taxes. These quarterly payments are due on the 15th of April, June, September, and January.

If you do decide to start making estimated tax payments, remember that your payments must be made in full and on time. Failure to do so may result in being charged a penalty for underpaid taxes.

How are your records looking?

One of the most strategic moves that anyone, self-employed, in the gig economy, or an employee, can do when filing their tax returns is to keep their paperwork organized. Who did you work for or complete work throughout the year? Did you receive all of your necessary tax forms or are you still waiting on a few? What about deductions? Do you have your receipts handy for business expenses you can deduct? Establish a solid recordkeeping system for every year that you are self-employed or a member of the gig economy and keep it as up-to-date as possible. Doing this allows you to document and track your income and expenses and can come in quite handy if you need to provide proof of your professional activities within a specified timespan.

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Deborah Sweeney – Legal Expert, CEO, MyCorporation.com – Calabasas, CA

Deborah Sweeney HeadshotAs CEO of MyCorporation Business Services, Inc. (MyCorporation.com), Deborah Sweeney is an advocate for protecting personal and business assets for business owners and entrepreneurs. With her experience in the fields of corporate and intellectual property law, Deborah has evolved from lawyer to business owner. She has extensive experience in the start-up and entrepreneurial industry as she has been involved in the formation of hundreds of thousands of businesses for MyCorporation.com’s customers.

Ms. Sweeney received her JD & MBA degrees from Pepperdine University. She is active in the community and loves working with students and aspiring entrepreneurs. She serves on the Board of Regents at California Lutheran University and is a founding member of Partners of Pepperdine. Deborah has served as an adjunct professor at the University of West Los Angeles and San Fernando School of Law in the areas of corporate and intellectual property law. Ms. Sweeney is also well-recognized for her written work online as a contributing writer with top business and entrepreneurial blogging sites.  She is a regular contributor on Forbes, American Express, Social Media Today, and BlogHer among many others.

In her ‘free’ time, Deborah enjoys spending time with her husband and two sons, Benjamin (8) and Christopher (6). Deborah believes in the importance of family and credits the entrepreneurial business model for giving her the flexibility to enjoy both a career and motherhood. Follow her on Twitter @deborahsweeney and @mycorporation.

5 Tax Deductions Self-Employed Workers Need to Take Advantage Of by @DeborahSweeney

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5 Tax Deductions Self-Employed Workers Need to Take Advantage Of

by Deborah Sweeney | Featured Contributor

One New Year’s Resolution that many entrepreneurs probably have at the top of their list is to get a head start on filing taxes. For the self-employed especially, the clock is ticking to get paperwork organized and determine how many business expenses are eligible for deductions. The tax deduction rule of thumb is that the expense must be ordinary and necessary, meaning that it should be accepted in your line of work and also appropriate for it. Here’s a look at five deductions self-employed workers should take advantage of in 2017.

  1. Home office

Do you work out of your home office or use a part of your home for business? You might qualify for a home office deduction, available for all types of homes and homeowners as well as renters.

If you want to qualify for a home office deduction, you need to use that part of your home as a principal place of business exclusively and regularly. The deduction is typically based on the percentage of your home where it is used for business. Choose between the following two available options in order to determine the home deduction percentage.

Regular Method: This method determines actual home office expenses including areas like mortgage interest, insurance, utilities, and repairs. You can figure these out on Form 8829 Expenses for Business Use of Your Home and then report the deductions on line 30 of Form 1040 Schedule C, Profit or Loss From Business.

Simplified Option: Better known as the Simplified Option for Home Office Deduction, this helps simplify the calculation for the business use of your home. This method allows for a standard deduction of $5 per square foot of home used for business, up to 300 square feet. If you know that you work out of a space that is larger than 300 square feet, consider using the regular method instead.

  1. Standard mileage rates

If you spend a lot of time driving to meet with clients, your expenses for operating a vehicle for business could be deductible. Here’s what the 2016 standard mileage rates for cars, vans, and pickups looks like for business, medical, and moving purposes.

  • 54 cents per mile for business miles driven, down from 57.5 cents for 2015
  • 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015
  • 14 cents per mile driven in service of charitable organizations

Remember that if your employer reimburses your travel, you can’t deduct that expense. However, if you are only reimbursed for a small portion of the standard mileage rate, you will be able to deduct the excess amount per mile.

  1. Health insurance premiums

According to the IRS, anyone self-employed with a net profit for the year may qualify for health insurance deduction. Keep in mind that this is not an itemized deduction, but an adjustment to income on premiums that you paid on a health insurance policy. Use Form 1040, Schedule A, Itemized Deductions to include the remainder with any other medical expenses as an itemized deduction if you haven’t claimed 100% of your paid premiums.

  1. Website and software

Being self-employed means working hard to set up a professional online presence. If you created a new website over the last year or purchased software programs that you use in your line of work, you can deduct these expenses. Website deductions may include domain fees, maintenance, and/or building costs.

  1. Incorporating your business

If business boomed this year and you incorporated or formed an LLC for your services, congrats! That’s a major step forward in protecting your personal assets as well as the professional assets of the business. It’s also acknowledged by the IRS for deductions. Some of the expenditures that you are able to write off during the business’ first year include state fees and legal costs. My recommendation is that if business is seriously picking up, take the time to incorporate or form an LLC for it. Saving a little extra money during tax season, plus asset protection and legitimacy for your brand — it’s a win-win for starting 2017 with a bang!

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Deborah Sweeney – Legal Expert, CEO, MyCorporation.com – Calabasas, CA

Deborah Sweeney HeadshotAs CEO of MyCorporation Business Services, Inc. (MyCorporation.com), Deborah Sweeney is an advocate for protecting personal and business assets for business owners and entrepreneurs. With her experience in the fields of corporate and intellectual property law, Deborah has evolved from lawyer to business owner. She has extensive experience in the start-up and entrepreneurial industry as she has been involved in the formation of hundreds of thousands of businesses for MyCorporation.com’s customers.

Ms. Sweeney received her JD & MBA degrees from Pepperdine University. She is active in the community and loves working with students and aspiring entrepreneurs. She serves on the Board of Regents at California Lutheran University and is a founding member of Partners of Pepperdine. Deborah has served as an adjunct professor at the University of West Los Angeles and San Fernando School of Law in the areas of corporate and intellectual property law. Ms. Sweeney is also well-recognized for her written work online as a contributing writer with top business and entrepreneurial blogging sites.  She is a regular contributor on Forbes, American Express, Social Media Today, and BlogHer among many others.

In her ‘free’ time, Deborah enjoys spending time with her husband and two sons, Benjamin (8) and Christopher (6). Deborah believes in the importance of family and credits the entrepreneurial business model for giving her the flexibility to enjoy both a career and motherhood. Follow her on Twitter @deborahsweeney and @mycorporation.

10 Steps to Go from Self-Employed to Business Owner by @KelleyKeller

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10 Steps to Go from Self-Employed to Business Owner

by Kelley Keller | Featured Contributor

Whether you’ve already started a business or you’re thinking of doing so, you should consider how to go from self-employed as a sole-proprietor to being a business owner, meaning you own a business that is completely separate from your personal life in terms of operations, finance, taxes, and the law.

As a sole-proprietor, you’re selling goods or services as yourself. There isn’t a formal and separate business entity. Your income and losses are reported on your personal tax return. While it’s quick and easy to be self-employed as a sole proprietor, there are also risks involved. Mixing your business and personal income and expenses can be a slippery slope if things go wrong.

Do You Have a Hobby or a Business?

Before you do anything else, you should determine whether you have a hobby or a business. The distinction is really important when it comes time to file your taxes because the IRS views hobbies as very different things than businesses.

In fact, the IRS uses eight key factors to determine whether you have a hobby or a business, so your first step to becoming a business owner is to review those factors and figure out which you actually have. If you have a business, then you can move on to the 10 steps of becoming a business.

Legal, Insurance, Finance, and Tax Steps to Become a Business

There are five steps you should take to become a business that are critical components of building a solid legal, insurance, finance, and tax foundation (your LIFT Foundation) for your business:

  • Form a business entity by registering your business in your state (usually with the Secretary of State).
  • Obtain an Employer Identification Number (EIN) with the IRS. This is like your business’ Social Security Number.
  • Prepare your business Operating Agreement or bylaws and initial organizational resolutions. Depending on the type of business structure you choose (e.g., limited liability company or corporation), there are different types of documents you’re required to prepare.
  • Open business bank accounts, obtain insurance, and file any special tax elections. For example, if you want to be taxed as an s-corp rather than a c-corp, you have to file the necessary documents to make that tax election (IRS Form 2553).
  • Set up your company record book and maintain it so you’re treating your company like a company, not just as an alter ego for yourself.

Setting up a business the right way can be confusing, but there are ways to get help so you do it right the first time. Whether you dive deeper into the articles here on She Owns It, read an ebook, find a mentor, or visit your local SCORE office, you should educate yourself.

And of course, it’s always a good idea to hire professionals like attorneys, accountants, a tax advisors very early on so you don’t make mistakes that could end up costing you a lot more money in the future.

Branding and Marketing Steps to Become a Business

Once you’ve set up your legal, insurance, finance, and tax foundation, you need to set up your branding and marketing foundation. The next five steps that you should take to become a business ensure that you get started correctly:

  • Trademark your business name (as your brand name), and register it and similar names as domain names and as social media URLs so you can protect both your business and your brand.
  • Decide how you’re going to represent your business and brand online. For example, consider if you’re going to promote your business brand or personal brand to generate sales. It’s expensive to grow both brands until you have a budget to pay for marketing help!
  • Consider how your trademarked and registered business name lives together with any product or service brands you’ll create in the future so you have a cohesive brand family.
  • Identify the factors that define your brand so you can create the right messages to attract customers.
  • Learn how and when to use Inc., LLC, trademark symbols, and copyright symbols, so you properly protect your brand and business without annoying your audience.

The Takeaways

Of course, these are just the first 10 basic steps you should take to go from self-employed to business owner. However, if you have a business (not just a hobby) and you follow these 10 steps, you’ll be on your way to building a solid foundation that your business and brand can grow on for many years to come.

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Keller Head ShotKelley Keller, Esq. is President of The Keller Law Firm and a 20-year veteran of the intellectual property law field. As an intellectual property attorney, she has deep experience helping businesses of all sizes identify, manage, and protect their trademarks, copyrights, patents, and trade secrets, including many household brands like Toyota, Disney, and Verizon, which she worked with during her tenure at two of the largest IP law firms in Washington, D.C.  Kelley also offers education to small business owners, creative and coaching professionals, digital entrepreneurs, and established companies about starting, building, and growing a Rock Solid Business on an strong foundation through her website KelleyKeller.com.

Kelley’s personable nature and ability to explain complex legal issues in simple terms set her apart from most attorneys. She is relentless in helping businesses, their owners, and their families mitigate risks and open the doors to new opportunities.

You can find Kelley on Twitter, LinkedIn,Facebook, and Instagram.