Do you do Fiverrs from home? An easy way to reduce your US taxes

[taxhelp]

If you’re like the rest of us on Fiverr, you want to make sure they keep as much of their hard earned fiverr revenues in their pocket as opposed to paying taxes. There are several ways to lower your tax liability, however, the best and easiest way to do so is to use the Home Office Deduction. This is a ruling from the IRS allowing business owners to deduct part of the expenses associated with their home office as a business expense.



Let me explain how it works.



There are several methods but the easiest one is the aptly named “Simplified” method. To calculate your tax benefit, you first have to figure out the size of your home office and compare that to the rest of your house/apt/loft. You then can take that percentage and apply it to the different expenses associated to your home office.



For example, let’s say your house is 1,000 sq ft and your home office is 100 sq ft and you pay rent of $2,000 a month. Using the Simplified method, you calculate that your home office comprises 10% of your total home (100/1,000=10%). You then use that 10% and apply it to the $2,000 in monthly rent giving you $200. For US tax purposes, you are able to use $200 as a business expense.



This doesn’t end here. You can apply this to any expense that you use for personal and business use to determine how much of it you can legally deduct as a business expense. For example, if you have a monthly cell phone plan of $150 and you use it 80% for personal and 20% for business, you are able to deduct 20% of it ($30) as a business expense.



This is general advice and guidelines that do not take into account your specific tax situation. You should consult with a trusted tax professional prior to making any decisions that may impact your taxable situation.



Feel free to contact me if you have any questions.



Wondering how your Fiverr gigs are taxed? You can read my other post here: http://forum.fiverr.com/discussion/31093/how-are-my-fiverr-earnings-taxed#Item_11

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[misscrystal]

Hi Taxhelp,
Since we are self employed do we need to pay tax every 3 months?

[fonthaunt]

Here is what I’d like to know about this post. You’ve offered it as a tip. Then you said

taxhelp said: This is general advise and guidelines that do not take into account your specific tax situation. You should consult with a trusted tax professional prior to making any decisions that may impact your taxable situation. You can contact me for any clarification and to help you with your tax questions.

In your gig description you say this:

-Over 12 years of Experience in Corporate and Individual Tax Matters
-Highest Rated Tax Professional on Fiverr!
-Former Owner of Tax Firm

It seems to me that you mean you represent yourself as a trusted tax professional as long as someone buys a gig so you can apply more specific advice to seller’s specific tax situations. Could you clarify is that is correct?

[blondey]

Hi fiverr friend! I have a question; What if you own your home and it is paid for? How to you figure the “rent” amount? Would it just be an estimate of the going rate of rent on similar homes?

[taxhelp]

Reply to @fonthaunt: Thanks for the question! Like any type of advice, knowing all the facts of your particular situation can help determine the best course of action and application of tax rules. Just because you made $12,000 and your neighbor made $12,000 doesn’t mean both amounts will be taxed the same way since it depends on many other factors.

Same with a doctor, just because your head hurts doesn’t mean it will always be the same treatment for everyone. First we need to know the specifics in order to provide you with the best treatment options, whether it’s medical care or tax advice.

[taxhelp]

Reply to @blondey: Hi Blondey! In this case, you would take any expense related to your house. Even though you don’t pay for rent or mortgage, you still pay property taxes so you would take a percentage of that. You pay electricity, internet, water, and other utilities so those would also fall under this category.

Good luck!

[taxhelp]

Reply to @misscrystal: You are probably referring to the Self Employment/Estimated Quarterly Taxes. Although it depends on the state, like @kjblynx mentions below, it is more of a Federal issue. Some states do not have a personal income tax so you wouldn’t have to do these quarterly payments for your state.

For Federal Tax purposes, you are not required to do them quarterly, however you are required to pay at least 90% of the total tax owed prior to the end of the year. Doing this will help you avoid any tax penalties.

Great question!

[fonthaunt]

Reply to @taxhelp: Sure! I understand what you are saying. What I’m asking you is : Are you prepared to help people with specific questions about their individual cases either here in this thread or for free via inbox?

Or, are you saying that these are general tips to get people thinking about their own situations (headaches) and you can help (treat) them via gig purchases? Either answer is fine, I am just determining what you are offering.

[taxhelp]

Reply to @fonthaunt: lol. It’s a bit of both. If anyone has a general question I can answer on the thread (see the other replies) and/or if anyone has a specific question I can help them out through my gig.

It’s up to the poster to decide which one is best for them.

[fonthaunt]

Reply to @taxhelp: Thank you. Overall, then, the thread appears to be related to gig purchases for some users who need specific help. In that case the thread is still just fine but needs to be in the My Fiverr Gigs category.

[alliemadison12]

Reply to @fonthaunt: I personally think this post has been one of the more useful posts in the tip category. It will get lost in the “my gigs” category. Let’s focus on the content and not get hung up over the label on it 🙂

[julipalmer7]

@taxhelp boy I wish you were in Jamaica! Thanks for this post though. I am sure it’s useful for other users.

[fonthaunt]

Reply to @alliemadison12: I don’t disagree entirely and I did offer the OP some suggestions via inbox. With a bit of editing the post fits in this category fine. I wouldn’t have asked questions if I didn’t think the author intended to make this a tip post - I would have just moved it or edited it myself according to the guidelines that were given to me.

A couple of things to remember are that categories are always a bit of a judgement call but it also takes some care to not give preference to one post over another and cause problems. Your thoughts are appreciated. 🙂

[taxhelp]

Reply to @julipalmer7: I appreciate the comments!

[fonthaunt]

Reply to @taxhelp: Great work with the revision! The tips are very helpful and I would encourage sellers or buyers with tax questions to check out your posts and profile. Good luck!

[thecreativeguys]

Reply to @fonthaunt: I saw where you were heading from reply #1, lol

[thecreativeguys]

Great post!!

I was told that you don’t have to claim taxes (Canada) until you are making a sufficient income of thousands of dollars per year. I determined that my money was already getting Fiverr fees and paypal fees involved so taxes was necessary. Plus, it’s just a hobby 🙂

[fastcopywriter]

I’m not an accountant, but if you form an S-Corporation, you can deduct a lot of things from your taxes. Your internet bill, rent or mortgage payment, Amazon purchases, gasoline, mechanical repairs, etc, etc, etc.

[fonthaunt]

Reply to @thecreativeguys: I always hope to educate, not remove or move, when the intention of the post is good. It’s hard enough deleting hundreds of Korean spam posts! 🙂

[david388]

Reply to @fastcopywriter: aren’t these the same as the benefits that come after forming an LLC? Or is an S-Corporation preferable for freelancers?

[catsquirrel]

Reply to @thecreativeguys:
If your total income (from Fiverr and any other source of income, combined) is small enough that you don’t owe any taxes, I’m pretty sure that’s true.

Track it carefully, though, because the numbers at which you have to file your taxes and the numbers at which you need to register for a GST number are usually different.

Some people are of the mistaken impression that, if they have a day job and their freelancing income doesn’t meet the GST threshold, they don’t have to declare it. Avoid that mistake. It will come back to bite you.

Cheers.

[ussen7]

~O)

[misscrystal]

I think you can deduct all business related expenses even if you are a sole proprietor, without incorporating. The main benefit to incorporating is you can have shareholders, and you have some immunity in the event of a lawsuit if you are one of the directors of the corporation. You may have a few more things you can deduct also such as the cost of health insurance.

[fastcopywriter]

Reply to @david388: I think S-Corporations are cheaper to form than LLC’s, but I could be wrong. The only scary part is that sometimes the government sends you mail, asking for Board of Director reports, which you don’t know if it’s true, and other times you get telemarketers trying to sell you security services and other things they think you need.

[jenniferdetar]

I just started working for myself this past June. One of my clients is tax preparer. I know there are some things you can deduct from working at home, but it’s a gray area on the details. And it does vary on where you are based out of.

When I file my taxes in Feb, I’ll let y’all kow.