Friday, April 12, 2013

Tax Time

It's that magical time of the year again. Tax Time. Being self employed in part or in whole for many years I'm possibly more familiar than most with tax forms. Yes, I do them myself. I'm generally too poor to hire some one else to do my taxes for me. Really? You can't cough up $40 or $50 to go get it done? No. And here's why.

When you're an employee you get a W-2 form at the end of the year. You slap a few numbers on a 1040-EZ form and you're pretty much done. If you have some investments or kids it's a few more minutes of work but that's it. If you're self employed you have to keep track of all your earnings yourself, make quarterly payments because there's no check for withholding to come out of, and also keep minute track of everything you spend on the business. In my case that runs to eighteen pages for the Federal (plus a couple dozen pages of worksheets that I'm not required to file but have to do) and nine pages for the State of New York.

Specifically that's a Schedule C to state my profit or loss from my business, a Depreciation form to keep track of large purchases and take the benefits over a period of years, and Schedule SE to compute my self employment tax. Double all of that because my wife runs a tiny hand crafting business as well.

Sometimes it works out great. You tally it all up and if you're working a job type job as well, you've probably had some withholding and you might even get a refund. This year I worked my full-time-plus job week in and week out, and still managed to squeeze in a couple dozen gigs on the side. After all that paperwork I owe my uncle a couple hundred bucks and the state owes me a couple hundred. Meh. It could be way worse. I could have spent the difference on someone to do the paperwork for me.

The point is this Brethren of the Knob and Fader: at some point you're going to make the jump from doing the occasional spot of mixing or recording for a few bucks cash and you're going to start doing actual business. In the eyes of the IRS you should really be declaring and paying taxes even on those bar gigs you mixed for twenty bucks. Do the right thing here. It's not hard to keep a ledger in a note book, stuff all your receipts in the glove box and get it all straightened out in April. You can get software to help if you've got clients that want an invoice before they cut you a check. Heck, you can even do most of it from your phone these days.

I'd also advise you not to go it alone. During the year most of the tax prep places are kind of just sitting around treading water. You can walk in the door and a lot of times get a bushel of advice for nothing in the hopes that when the time comes you'll bring your return to them. There's actually pretty good reason to do so as well. If you use a third party preparer and there's ever a question or (gasp) an audit, you've got solid backup.

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