Two Tax Questions!

May 13, 2016 7:20 PM

It's weird to ask tax questions in May, but I'm trying to be nicer to myself next April. If I have a full time job that involves attending events, can I write off expenses regarding those events? And, if I'm anticipating having to file freelancer taxes next year, how much of that untaxed income should I be setting aside to pay taxes?

Deductions: I work for a music/events promotion company. Which of these are legitimate business expenses?
-tickets to a show
-drinks at a show
-food I instagrammed for work
-a cocktail I instagrammed for work
-maintenance of the bicycle I use to get to/from work
-clothing I purchase to wear to host events

And like, how do I maintain records of all these things? They really wanna see a faded ass thermal paper receipt from a year ago? How do you do it? This is less of a question because there's this old thread, but if you have anything else you want to recommend let me know!

Freelancer Taxes: I'm a writer. I'm also starting a sideline gig where I sell digital files through a third party website, the website passes on 100% of my commission untaxed, and then I'm issued a 1099 and the IRS is informed of my earnings. I'm on track to finally break the $1000 ceiling and have to pay some of my earnings back. How much should I be trying to save out of this money to pay for this? I'm in Illinois.

posted by Juliet Banana to Work & Money (4 answers total)

IANAA. What you want to look for is "unreimbursed employment expenses." But most tax advisors will say not to bother with this as that is a red flag for auditing. I feel like all of those expenses that you listed should be reimbursed by your employer. If you were driving your car to after-work events, you should submit for a mileage reimbursement. If you haven't explicitly talked to your employer about this, now is the time to bring it up. "Hey, I have all these expenses from last weekend for that show, I've tracked them in my app* and have receipts, how do I expense these?"

Generally, bus tickets, car maintenance or bicycle maintenance to and from work is not deductible from your taxes for regular employment.

Rule of thumb for freelancing, every bit of income you get, sock away 30%. That should give you more than enough cushion at tax time. *Track your expenses through an app and take a snap of receipts -- I really like XpenseTracker. I have different main clients (my personal business, my side business and work I do regularly for a small company) and track everything there. Make sure the mileage rate is up-to-date (not sure about bike miles...interesting), take a snap of every receipt that you can and export from it monthly.
posted by amanda at 9:56 PM on May 13, 2016 [1 favorite]

Oh and alcohol is kind of a different animal. I think alcohol is specifically called out as not being deductible as a business expense. Dining with another person where you buy their meal as well as your own in the course of networking for your job/work related is deductible by half. But the alcohol gets left out. Your company probably deducts entertainment expenses from their taxes but not sure how they might handle alcohol. However, there is likely a company policy there, but if not, include it as one of your expenses and see what they say. They may reimburse it even if they don't themselves take it as a tax deduction. More money in your pocket is good.
posted by amanda at 10:00 PM on May 13, 2016 [1 favorite]

Not an expert, just a freelancer myself: If your freelance/self-employed work is music-industry related, then you can count almost all music-related purchases as business expenses on your schedule C, but the "unreimbursed employee expenses" on your schedule A are probably not going to be worth it to you since a) you can only include amounts above 2% of your income, and b) unless you have a mortgage your potential itemized deductions are unlikely to be above the "standard deduction," so come tax time you won't be itemizing there in the first place. Schedule C expenses, on the other hand, will always count (at least until they zero out your freelance income completely).

30% is a good estimate for your freelance taxes (though if your total income -- including W2 -- is very low, it can end up as significantly less than that), and note that that's 30% after expenses. But more importantly: if you want to avoid penalties you need to be paying those "estimated taxes" quarterly (and also a certain amount quarterly to your state to cover their income tax). The federal part of that happens at EFTPS.gov. If you overpay you'll simply get it back next April. (Note that if your W2 job usually withholds more than necessary -- i.e., if you usually get a refund with your taxes -- that excess amount counts toward your freelance taxes.)

If you usually do your taxes yourself, it might be worth hiring someone this year so you can model your choices on theirs in the future? Find someone who has at least some experience with entertainment industry freelancers.
posted by nobody at 4:59 AM on May 14, 2016 [1 favorite]

Emphasizing: if you want to avoid [big-ass] penalties you need to be paying those "estimated taxes" quarterly (and also a certain amount quarterly to your state to cover their income tax).
posted by Capri at 7:27 PM on May 15, 2016