January is a time for resolutions, uncertain weather patterns and preparing for tax season. For employees, this means waiting for W-2s to arrive. Freelancers, on the other hand, expect a flurry of 1099s from their clients. Once these documents arrive, it’s time to get started on filing taxes, paying off any liabilities and claiming those refunds.
The recent fiscal cliff negotiations resulted in some tax changes that telecommuters need to know about. As with anything tax related, it is always wise to visit the IRS’s own site [http://www.irs.gov] for official answers and to talk to a tax professional about your own situation.
Here are some of the need to know changes for 2013:
Self-Employment Tax Increase
The payroll tax holiday that reduced self-employment taxes is gone, so be prepared to pay more self-employment tax in 2013. Self-employment tax is your contribution to Medicare and Social Security, similar to what an employer would pay on your behalf.
2010 Affordable Care Act Medicare Surtax
If your income is over $200,000 as a single individual, or $250,000 as a couple, you’ll also have to pay a Medicare surtax of .9 percent. In an article at the Freelancers Union site, CPA Jonathan Medows warns this can get tricky for a self-employed person who is married to someone who isn’t self-employed. The trouble is that the conventionally employed spouse’s employer may not withhold the tax if the spouse isn’t making over $200,000. If the self-employed spouse’s income brings the couple’s joint income over $250,000, this could result in a surprise at tax time. Mr. Medows recommends talking to a tax professional about your options.
Jan 1 – Mar 31: Due date April 15
Apr 1 – May 31: Due date June 15
Jun 1 – Aug 31: Due date September 15
Sep 1 – Dec 31: Due date January 15 of the following year
The IRS allows you to pay your taxes via its Electronic Federal Tax Payment System®. You can pay estimated taxes over the phone or online through this service.
Student Loan Interest Repayment
Still paying off your student loans? Talk to your tax professional about managing your payments. Until recently, if your yearly income was under a certain threshold, you could deduct $2,500 in student loans interest payments from your income each year. The law has changed, however, and you can now only deduct the first 60 months of repayment.
Protecting Yourself at Tax Time
If you are self-employed or work at home, your taxes can get a bit complicated. While you may be entitled to some tax deductions for your home office, determining deductions can be difficult.
To avoid having to pay penalties and interest because of a mistake, select a tax preparation service that has experience processing returns for the self-employed or for people who work from home. Be wary of using free online e-file services: They usually work great for folks with straightforward returns, but aren’t programmed with information about self-employment or home office deductions.
If you are self-employed or work from home, how do you handle your taxes each year?
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