This is the sixth year TurboTax and #WeAllGrow Latina Network has come together with the goal of empowering Latina entrepreneurs and business owners around the topic of finances, financial planning, and tax preparation.
As part of the #Smart Dinero (Smart Money) digital partnership with We All Grow, we bring you a series of Q&A videos where we share important self-employed tax questions from the We All Grow community and the answers from our own TurboTax experts. After enjoying the video, start filing taxes today with TurboTax Live Self-Employed to get unlimited tax advice for your personal and business income and expenses, and get a final review from a real tax expert.
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The third and final video from our WeAllGrow series is available for your viewing pleasure. This time our TurboTax expert answered questions from small business owners who wanted to better understand the recent changes under the American Rescue Plan, while also learning more about common mistakes to avoid when it comes to taxes. Below is a link to the video and some key takeaways from the conversation:
- There are multiple changes for the self-employed under the American Rescue Plan and new extensions to the PPP plan that impact entrepreneurs. Here are some of the most important changes:
- Unemployment benefits are being extended to $300 per week until September 6, 2021.
- Under the American Rescue Plan there are new provisions that allow the first $10,200 of unemployment income for singles, and $20,400 for married couples to be tax free if your income is under $150,000.
- Sick and Family Medical Leave credits are being extended if you are impacted by COVID.
- Those seeking PPP loans can take advantage of the extension until May 31st.
- Employees and those with a side gig will note some key differences when filing their taxes, including:
- Self-employed individuals need to fill out a 1099 NEC form versus a W2 form that is filled by employees.
- If, as an entrepreneur, you have a net income of $400, you have to pay self-employed taxes.
- In addition to the 1099 NEC form, you need to include a Schedule C form along with the 1040.
- If all of the above seems overwhelming, TurboTax has you covered with experienced TurboTax Live experts who will ask you simple question and handle the rest.
- Some of the biggest tax mistakes made by small business owners include:
- Not tracking income and expenses year-round.
- Not writing off expenses related to your business including a car, computer, equipment, etc.
- Incorporating your business when not making enough revenue to take key deductions. Self-employed individuals and LLCs can typically take advantage of similar deductions.
If you missed the previous videos, you can find links and summaries below to ensure you get the latest news impacting your taxes.
Here are the key takeaways from episode 2:
- As a content creator you need to report every source of income such as brand partnerships, podcast, video channel, or sponsorship even if you aren’t receiving cash value. It should all be reported as taxable income in your tax return.
- Solopreneurs can take advantage of these top three tax deductions to save money:
- Retirement plans are a great way to minimize tax liability. Solo 401K is a great plan for solopreneurs because it allows you to maximize how much you and your “employer” (aka you) contribute to the plan. It also allows you to borrow a percentage of the money from the plan without paying taxes.
- If you work from home and have a designated space where you run your business like the garage or a shed, you can deduct this in your tax return. It’s a powerful deduction because you are already spending money on rent or a mortgage and turning it into a deduction to minimize your tax liability.
- Equipment used to create content is all tax deductible. Laptops, cell phones, accessories, etc. can be depreciated, which means you can deduct a percentage over the life of the equipment or as a Section 179 deduction to deduct the entire amount in one year.
- The U.S. tax system is a pay-as-you-go-system. If you are self-employed and end up with more than $1,000 that you owe to the IRS, you are required to pay quarterly taxes. There are four different pay periods throughout the year, and you must pay your tax liability by January 18, 2022.
If you missed video #1, don’t worry. Learn more about Covid-19 self-employed tax implications below:
Don’t miss these key important takeaways:
- If you took COVID-related distributions from your retirement, you may be able to wave the early withdrawal penalty under the CARES Act.
- If you took a COVID-related distribution from your retirement fund, you could recognize the funds in your income over three tax years instead of one under the CARES Act, lowering your taxes.
- Stimulus check payments are not taxable, and if you received too much money you don’t have to pay it back.
- Additionally, those who received partial payments or didn’t receive what they are eligible for may be eligible for a Recovery Rebate Credit.
- Those who had a baby in 2020 may be able to claim the Recovery Rebate Credit on their tax return to receive stimulus money for their qualified dependent that was not included in their first or second stimulus payment.
- Self-employed individuals are the only ones who can deduct a portion of their home work related business expenses or the home office deduction on their federal taxes. If you are an employee who worked from home in 2020, you cannot claim these expenses on your federal taxes. Some states still allow you to deduct unreimbursed employee expenses on your state taxes.
- There are important credits called qualified sick and family leave credits that are part of the Families First Coronavirus Relief Act that can be claimed if you were sick, required to quarantine, had to take care of family members, or had to reduce work hours due to lack of child care. TurboTax has a Tax Credit Estimator to help you figure out these tax credits. When you sit down to get your 2020 taxes done, TurboTax also has proactive guidance on this and other tax provisions related to coronavirus relief.
Keep reading the TurboTax blog for more in-depth information on these topics, and beyond. Don’t worry about remembering all these tips. TurboTax will ask you simple questions about you and give you the tax deductions and credits you’re eligible for based on your answers. And if you have questions, you can connect live via one-way video with a TurboTax Live tax expert to get unlimited advice for your tax situation. You can also fully hand over your taxes to a TurboTax Live tax expert and have them file for you from start to finish.