For our group’s March 6th meeting at the Towson library we were lucky to have a great member—who’s also a CPA and best-selling author—volunteer to provide the self-employed with tips for 2018 taxes, plus down-the-road advice as we progress through 2019.
She’s Michele Cagan (more info on her at article’s end) and the first insight she provided dealt with the tax laws passed by Congress and then approved last year.
The Tax Break
“The 20% deduction is the big thing and it’s just super awesome” were Michele’s opening words. “You are freelancers so–whether you know it or not–you are businesses. [Now] you only have to pay taxes on 80% of your income. You have to pay 100% of self-employment tax, but income tax is only 80%.”
Michele admitted things look a little confusing even on the so-called “simple” tax forms, but she explained things that get a lot of folks confused. For example, one form she showed asks, “Are you a business?” and a lot of freelancers apparently aren’t sure what to say. Many are especially unsure when they’re sole proprietors and not LLCs or S Corps. But however you’re making money—full-time/part-time, sole proprietor or one of those other designations—you can take advantage of this small business tax break.
Better Understand Expenses
Michele also noted we are eligible to deduct a gadzillion (to use the accounting terminology) expenses, but she mentioned one major exception. “You can’t deduct entertainment expenses [the same way] anymore, so if you take clients somewhere or get them tickets to something, you can’t deduct it all.”
Great news if you need to buy equipment, like a laptop. “With the new tax law you can deduct 100% of [equipment] instead of having to amortize it over time,” Michele told us. There is a limit, but it shouldn’t worry too many of us: you can take the 100% deduction as long as your equipment expenses don’t tip over one million dollars. And of course if you want to amortize the asset (an asset lasts more than one year), that’s up to you.
How do we prove our expenses? One attendee brought up the travel question; e.g., driving to an EFA event. “Expense apps are awesome. If you want to go free, you can use Smart Receipts,” Michele said, adding, “The bad thing about it is that it doesn’t back up to the cloud, so you have to make sure you have all those records.” But it is easy to scan receipts, turn them into PDFs, and help you in other ways. She said there is a version that comes with automatic cloud backup; it requires a one-time payment.
Another app she mentioned: Expensify. “It’s really easy,” but it does have a monthly fee. One can also look up Shoebox, though the only one I found is for photos. (Perhaps you can take snapshots of your receipts?) “But all of them can track mileage if you tell them to,” Michele said.
Of course there is the old-fashioned way to track mileage. Keep a notepad in the car and write it down. Even here, though, today’s tech can help you. Go to Mapquest, Waze or other route software and find out the mileage for your trip. It’s about 12.5 miles–one way–from my place to the Towson library, so I’d double that and then multiply it by the mileage allotment of the IRS.
Perhaps one truly tantalizing travel tip that Michele revealed was how many trips count as “travel.” “How often do you go to buy pencils or a flash drive?” she asked. “I went to Staples this morning and it’s two miles from my house.” She admitted many of us might think, “Oh two miles? So what?” But she pointed out, “If you drive two miles 100 times that’s 200 miles . . . and that’s a $100 tax deduction.”
There’s a great deal more, but it would require a monograph, not a newsletter story. Let’s just say Michele went through a ton of checkpoints and stayed the full 90 minutes (and beyond), answering all attendees’ questions along the way. She also provided terrifically easy-to-understand handouts and—as if all this wasn’t enough—brought along four of her great books as free giveaways.
As you read this, Michele is of course helping current tax clients, but once things calm down you can chat and find out more about her services. Before then you can find a great deal about her through her website (see her info below), but again . . . please give her time to recover from tax season.
For more info on Michele and her books—including Budgeting 101, Financial Words You Should Know, and The Infographic Guide to Personal Finance—check out her website: https://michelecagancpa.com.
Wendy J. Meyeroff ###
Maryland Chapter Co-coordinator
In her non-EFA hours, Wendy J. Meyeroff is president of WM Medical Communications, a B2B and B2C health communications provider for 20+ years and—since 2018—the biz co-anchor of the Partners in Health and Biz podcast. Contact her via email@example.com.