contracting and taxes

demoncage

So I'm new to the contracting game and was wondering if anyone might have a good reference for an accounting firm.

Any feedback would be great. My adrenaline is pumping.

Thanks.

Emil Mujanovic

Not exciting at all!

-caseyjones

demoncage

You're just not hip, you need to get back in the game son.

TomDunne

You don't need an accounting firm. I worked as a contractor for more than three years and never had a problem with handling income tax.

demoncage

Right, it's really not a question of need. I've been doing my taxes for years. But I'm also not an expert, and I'm thinking in this situation, where you are able to deduct expenses, it might be to my benifit to hand it off to someone with professional knowledge on the subject vs. the cost of my own time investment.

Anyway, just trying to weigh options here. Has anyone benefited greatly from using an accountant?

Jesse Moody

i'm in the same boat right now. Just spend 50-60 bucks and get microsoft money or quicken. They handle all that stuff.

Paul Jaquays

I recommend Turbotax. You'll want the edition that includes schedule C filing. You should also get the IRS publications on Schedule C (most IRS pubs are available for download online) and as you discover possible deductions, get the publications that deal with those.

demoncage

I took alot of cab rides to the studio for my first gig and saved most of the reciepts. I called an IRS Agent a while back, an Agent Smith I believe, and he said that those cab rides would not be a valid deduction because it's simply transportation to work. Can you guys attest to that? Am I screwed on that front?

Jesse Moody

i thought that any expense related to work counted. I wrote off my gas for travel to school and work so i dont see why cab rides dont count. I have written off meals and all kinds of things and even toys for gods sake as they were used for reference / inspirtation. Guess it depends who you talk to.

demoncage

hey that's cool, if you did it and it worked then i see no reason not to go ahead with it. i assume you had to send in documentation for all that right?

Joshua Stubbles

I use Turbotax as well. Very easy. Just be sure that when you're contracting, you save about 25-30% of your paycheck for taxes. It might end up being more or less, but it's a matter of "just in case".

demoncage

Yeah, I heard that rule. actually the number i was told was more like 33%. But I ended up only paying one quarter of estimated taxes because I found out you don't have to after you've covered your last year's tax liability, which was compartively small for me. so now i'm going to end up owing alot i'm guessing, which brings me to the consideration of using an accountant under the assumption that they can swindel some money over to my side.

Paul Jaquays

@Demoncage: you are screwed on the cab rides. From the sound it of, you are a contractor working inside someone's studio in a workplace they provide for you? If that's the case, then your transportation to and from work doesn't count. What you can deduct are the costs you incur to purchase and maintain your own comuter equipment and peripherals. Costs related to maintaining your professional website. Business cards and stationery. Home office expenses if you actually have a dedicated office space. Telephone charges incurred in the process of doing business (but not your monthly phone bill unless you have a dedicated business line). Supplies. Research and reference materials. Travel costs for places other than your contracting site. Games and game magazines (research and reference). Etc.

demoncage

I demand a 3rd opinion on that. Damn you Jaquays, I knew you'd ruin me! In all honesty, that really blows if that's the case, but it sounds like Jesse did it so maybe I can try to slip it under the radar. Anyway, I don't understand the logic behind not allowing that deduction, it sounds like bullshit.

Jesse Moody

Yeah I guess it really depends on who you go through. I also wrote off my laptop and all my work related expenses with that. I had a dedicated office as well so I wrote off part of my electric, internet, rent, etc. You just need to investigate every thing you can and try to find a way to make it work.

Good luck to ya and I would recommend a seperate savings account for your tax liability.

mrsincredible

Paul is right, daily transportation to your normal place of work does not count. If you get sent off site or attend conferences out of town those do count. Everyone has to commute between their home and work, you only get mileage if it's out of your normal commute.

Paul had a lot of good advice about what you can deduct. As long as you don't try to claim outrageous expenses, you probably won't get audited and need to prove with receipts. But keep them if you have them. We have claimed all kinds of "reference materials" including spawn figurines.

If you want to have someone do your tax return and navigate the ins and outs of deductions, call around for a CPA. You probably want someone local so ask around at work or just check out your local neighborhood for an office.

demoncage

Cool, thanks for the advice. Think I'll try to find someone, hopefully as shrewd as Jesse. I'm reporting you you scumbag!

Ruz

I think you should hide your tax in a box in under the bed and if those crooks come after you , get the bif g hammer ready

TomDunne

A few bits of advice:

-you can deduct a hefty chunk of your rent and utilities if you DEDICATE THE SPACE FOR WORK. Turn your living room into an office and even if the IRS shows up to audit you, they can't dispute square footage. My old office was 20% of my apartment space, and included my computer desk, drawing table and bookcases filled with assorted media - I needed the space anyway, but putting all of the work-related things together let me deduct the entire room.

-if your business expenses are less than $5000, you don't have to itemize them individually. Unless you've invested heavily in new gear or software, you likely are under $5000 and the IRS isn't going to demand receipts for any sole proprietor who uses the non-itemized deduction.

-if you are going to exceed $5000 in deductions, everything that contributes to your business counts. Last year, I needed to develop high-definition video content for a client and didn't have a HD monitor, so I bought a 50" Sony projection HD TV. Could I have gotten by with less? Sure, but I did buy it for work and have the invoice and 1099-misc to prove it, and the IRS can't really quibble with my selection of HD viewing devices.

demoncage

Wait, I'm confused, a 1099 in relation to the monitor?

So w/ all your deductions, do you still end up owing or do you get a return?

TomDunne

A 1099 in relation to the job I did, showing I got paid for work that required the use of the monitor.

Technically, I always end up owing, but that's the way it is for anyone who pays estimated taxes - fourth quarter payments are either due by Jan 15th or 30th, depending on whether or not you pay off your tax completely. I suppose you could overpay and get a return, but you'd have to be kind of dumb to do that.

It's always better to owe the government anyway; anything you get in a tax return was basically an interest-free loan you give the federal government. If you keep your cash in the bank and then pay out in April, you make more money.

demoncage

sorry to resurrect this fascinating subject, but I was wondering about depreciable assets vs. operating expenses. Like can I claim my pc as part of supplies and then claim it again as a depreciable asset? I'd assume not, but can't seem to find the rules on it.

thanks.

jgarland

I'd also like to know more about the legal aspect of freelancing. Especially in Canada. From what I've heard, contracting overseas, or even for a client in the United States can be a major headache. I really wish there was some sort of definitive resource for these kinds of things.

Paul Jaquays

@demoncage. You can either expense the PC purchase all at once or over a number of years. A computer and most of the peripherals for it, are depreciable assets, not supplies. Operating expenses tend to be things like utilities, postage, office supplies, cleaning supplies, etc. You could also include reference books, blank CDs, and games in that list. However, major tool software (like Max, Maya, or even Photoshop) may need to be considered a capitol asset.

rawkstar

i guess the bottom line is... taxes on contract work suck! my advice would be to be careful about it, keep track of your business expenses and make sure you save off however much you think you'll have to pay up in the end and stash it in a savings account or something. If you're making alot of money then finding a good accountant that you can trust locally might be a good idea, otherwise just figure out how much ur making and how much u'll have to pay for taxes, its just math and some research its unlikely it'd take up so much of your time away from doing work to justify paying an accountant to do it. I personally just find a safe number to go by and leave that much off for taxes, for the past couple of years its always been at least 1/3rd of what i made on contract work that had to be paid to the government in taxes, it really sucks

Jesse Moody

there are also several computer programs that help you figure all this out. Now that I'm doing contract work for game related stuff I am also researching everything all over again.

How much rent can be written off, utility bills, etc.

I think turbo tax or microsoft money does this type of stuff. Not sure. Worth taking a look at.

I have set up a seperate savings account for said expenses.