Three new things I learned about taxes since being laid off
I'm no stranger to the 1099 and Schedule C. Since 2004 I've been a here-and-there freelance writer, in addition to working full-time as a salaried employee -- first for NY1 News, then most recently for TheStreet.com. I know it's important to keep organized, to hold onto invoices and business receipts and to tuck away a considerable chunk of my freelance dough to avoid surprises come tax season.
But two months ago I got the pink slip and immediately joined a quarter of the workforce in the "freelance economy." I am now a full-time, self-employed worker and am discovering there is so much more to know when it comes to my taxes.
Here's a sampling:
1. Your health insurance premiums are deductible. I've been completely in the dark about this. As someone with a full-time job who freelanced on the side, this was never applicable to me because I had employer-sponsored insurance. My premiums were automatically deducted from my paycheck. But now that I'm on COBRA and forking over 102% of my old health care costs myself, the IRS says I can deduct the full cost of my health insurance premiums. This is good.
2. You have to pay extra for social security. I'm not even slated to receive social security, yet I have to pay more for this endangered retirement benefit? Yes. It's all part of the so-called "Self-Employment Tax," or SE Tax which includes Social Security and Medicare taxes. When you're a salaried worker you pay 50% of the Social Security and Medicare taxes and your employer pays the other half. But when you're a full-time freelancer (i.e. a self-employed individual) you pay both halves. The Social Security tax rate for 2009 is 15.3% up to $106,800. If you earn more than $106,800, you only have to pay only the Medicare portion of the Social Security tax, or 2.9%.
3. You can deduct half of the self employment tax. There is a silver lining to the SE tax discussed above. According to the IRS, you can deduct 50% of your SE tax when calculating your adjusted gross income. This may help reduce your AGI and potentially trim your overall taxes.
Alright. Time to call my tax guy for the rest.
Reader Comments (Page 1 of 1)
5-21-2009 @ 5:35PM
DENISE SANZ said...
HELLO I HAVE A FRIEND AND SHE IS 3 YRS BACK ON HER HOME TAXES BECAUSE SHE WAS SICK AND NEEDED TO EXTED EACH YEAR WELL NOW THIS YEAR IS HERE AND HER TAXES ARE DUE AND THE TAX OFFICE TOLD HER THE WRONG DATE TO PAY HER TAXES AND THERE GOING TO TAKE HER HOME BECAUSE FIRST THE TAXES WERE $849.00 BUT NEED TO BE PAYED APRIL 29 WHEN SHE CALLED THEY SAID MAY 29 SO SHE DIDN'T PAY ON THE RIGHT DATE NOW THERE UP TOO $2700.00 AND BY MAY 29 THERE GOING UP TOO $3100.00 IS THERE SOMETHING WE CAN DO? SO SHE CAN STILL LIVE IN HER HOME?
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5-24-2009 @ 6:21AM
BellaTerra66 said...
Have her talk to a tax attorney. There is a thing called "Offer in Compromise." Sometimes people who owe back taxes wind up paying nothing or very little on their bill. Depends on her financial circumstances. But an Offer in Compromise is not a rare thing at all. The odds of her getting out from under this tax burden. The IRS could also put her on a payment plan, which usually entails interest and penalties. HOWEVER, under Pres. Obama, the IRS is being much nicer AND the IRS can waive any fees and penalties associated with a payment plan. But the bottom line is: this woman really needs to get her monthly and annual income, expenses and taxes in order this year and find out exactly where she's at financially. Seeing a financial planner, just one time, would be a very good move on her part.
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6-29-2009 @ 1:26AM
mack said...
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