Taxes for the Self-Employed in the United States

I am not an accountant. I have 8 years of experience as a self-employed individual & as a business owner. I just really like this stuff. The following information is collected from various pages on the IRS website & other sources. For your reference, I have included links to all of my sources. The explanations contained in this article are simplified and may not apply to you. Read the articles & consult with an accountant. In fact, I recommend that everyone use a CPA to do their taxes. If you want to do your own taxes, make sure to do your research. 

Do I have to file a tax return? And what are these 1099s?

Do I have to file a tax return? And what are these 1099s?

https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center#Obligations

Self-employed individuals receive a (or several) 1099-MISC form(s) in January & February. 1099s are a company’s way of reporting your income to the IRS. They can be issued for a variety of reasons, but the most common reason is that you earned income from a company for performing contractor services. Whether you did web camming, sold clips, sold paid social media subscriptions, or made porn for another company, you are usually classified as an independent contractor.

If you make at least $600 from any one company or individual, the company or individual is supposed to issue you a 1099-MISC. However, if you have a business (specifically an LLC with a S or C certification), the person or company is not required to send you a 1099-MISC. Even if they’re not required to send you a 1099, some companies may choose to send it anyway. Even if you do not receive a 1099 from a company, you must still report the income* if you meet the requirements below:

If you make at least $400 net from all self-employment income, you must file a tax return & report the income. Net = gross income – expenses

If you make less than $400 self-employment income, you must still file a return if you meet any of the other requirements listed here: https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

You might also receive a 1099-K from a company. A 1099-K is for third-party network transactions. You may receive a 1099-K rather than a 1099-MISC if you have over 200 transactions AND the amount of those transactions exceeds $20,000. These limits apply only to third-party networks and there is no threshold for payment card transactions. 1099-K is treated, for your purposes, the same way as a 1099-MISC.

Manyvids is an example of a company that uses a 1099-K rather than a 1099-MISC.

https://www.irs.gov/businesses/understanding-your-form-1099-k#targetText=Form%201099%2DK%2C%20Payment%20Card,to%20improve%20voluntary%20tax%20compliance.

https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center#Obligations

Self-employed individuals receive a (or several) 1099-MISC form(s) in January & February. 1099s are a company’s way of reporting your income to the IRS. They can be issued for a variety of reasons, but the most common reason is that you earned income from a company for performing contractor services. Whether you did web camming, sold clips, sold paid social media subscriptions, or made porn for another company, you are usually classified as an independent contractor.

If you make at least $600 from any one company or individual, the company or individual is supposed to issue you a 1099. However, if you have a business (specifically an LLC with a S or C certification), the person or company is not required to send you a 1099. Even if they’re not required to send you a 1099, some companies may choose to send it anyway. Even if you do not receive a 1099 from a company, you must still report the income* if you meet the requirements below:

If you make at least $400 net from all self-employment income, you must file a tax return & report the income. Net = gross income – expenses

If you make less than $400 self-employment income, you must still file a return if you meet any of the other requirements listed here: https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Am I required to send 1099s to people I paid? 

https://www.irs.gov/businesses/small-businesses-self-employed/am-i-required-to-file-a-form-1099-or-other-information-return

https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation

The most common situation in this industry is that in which a company or individual pays another individual for a service. If the person you’re paying is an independent contractor (does not meet the requirements to be considered an employee), and you pay that person $600 or more in a calendar year, then you must send a 1099. If that person performed the work for you under an LLC with no other classifications, you must send a 1099. If that person performed the work for you as an S-corp or C-corp (an LLC with an additional tax classification), you are not required to submit a 1099 for that person.

Ex: If you hire someone to do custom clips with you & pay them at least $600, then you’re supposed to submit a 1099 for them. However, if that person has an S-corp or C-corp, you don’t have to send a 1099.

Note: Most companies that help you with filling out & filing 1099s will charge you per person, so it would be to your advantage to not issue 1099s when you don’t have to. 

https://www.thebalancesmb.com/filing-form-1096-397967

If you submit 1099s by mail, you must also include a Form 1096 which is a summary of all 1099s. You don’t have to submit this if you e-filed your 1099s. But you may need to submit a 1096 for state taxes. https://www.thebalance.com/state-tax-web-sites-3193299?_ga=2.93993117.1837848505.1549397359-1864679335.1549397359

How do I get the information necessary to file a 1099 for someone I paid?

https://www.irs.gov/pub/irs-pdf/fw9.pdf

If you are paying someone & you expect to pay that person at least $600 in a calendar year, have them fill out a W-9. The information they report on the W-9 is the information you use when submitting a 1099. 

What are these other 1099s I got that aren’t 1099-MISC?

1099-DIV is for dividends, distributions, capital gains, and federal income tax withheld from investment accounts

1099-H for Health Coverage Tax Credit

1099-INT reports interest income you earned on investments and bank accounts

1099-K must be filed if you have at least 200 transactions & at least $20,000 in sales from third-party payment processors such as Paypal and Google Checkout. This is also issued by credit card payment processors.

Most of these forms do not need to be submitted with your returns. You only need to send your 1099-MISC if federal taxes were withheld (and that’s rare). 

What is a 1098 and why did I receive one?

A 1098 is used to report interest paid on student loans and mortgages, and paid college tuition.

What forms do I need to mail in if I’m filing by mail? 

https://ttlc.intuit.com/questions/3021165-what-forms-do-i-need-to-include-on-my-1040-mail-in

Your 1040 goes on top, then any schedules and supporting documents go behind that, ordered in the same order the information appears on your 1040. If you have a W-2, that goes on top of the 1040.

In addition to schedules, you typically only need to send in documents which show income tax withheld. 

Deductions

https://turbotax.intuit.com/tax-tips/self-employment-taxes/tax-reform-changes-for-self-employed-businesses/L4OoLLhqR

https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses

In 2017, some new laws were passed which affect self-employed individuals’ 2018 returns. You may now be allowed to take a deduction of up to 20% on your net income if you are a sole-proprietor, member of an LLC, partner in a partnership, or a shareholder in an S-corp. C-corps are not included.

This deduction is limited to 20% of the lesser of: net qualified business income or taxable income before the deduction. It will only reduce your income on your federal return and does not apply to self-employment tax. (You figure that separately.)

What does this mean? Most people will find that their taxes are lower. There are of course exceptions.

Contrary to rumors circulating, you can still claim all qualified business expenses on your 2018 taxes. Some people were confused about this. The new law eliminates deductions for unreimbursed business expenses of employees, but this does not affect self-employed individuals’ business-related deductions. And even if you are a wage-earner, this only affects you if you itemize your deductions on your personal return. Since the standard deduction for a single individual has increased from $6,350 to $12,000 for 2018 (and similarly for other filing classifications), approximately 50% fewer people will be itemizing in 2019 anyway.

https://www.fidelity.com/viewpoints/personal-finance/how-has-tax-reform-changed-deductions

Meals and Entertainment Deduction: https://www.irs.gov/newsroom/irs-issues-guidance-on-tax-cuts-and-jobs-act-changes-on-business-expense-deductions-for-meals-entertainment

https://www.irs.gov/pub/irs-drop/n-18-76.pdf

Some of us were waiting with bated breath for the IRS to issue guidelines. The good news is that you’re still allowed a 50% deduction for business-related meals. The bad news is that deductions for entertainment are no longer allowed. You can still deduct meals that are purchased during but separate from entertainment. (Ex: Baseball tickets are not deductible, but hotdogs bought at the game are. If the tickets included food, no part of the ticket is deductible.) You, or an employee, must be present during the furnishing of the meal, and it must be furnished to a current or potential employee (or, in this case, a person with whom you’re doing business). Be sure to read all of the IRS’ current rules.

You can deduct your meal expenses in one of two ways:

  • 50% of the standard allowance, which is $51 per person per day, and varies depending on location. https://www.gsa.gov/travel/plan-book/per-diem-rates/mie-breakdown
  • 50% of the actual meal expenses, which cannot be extravagant

Travel Expenses Deduction: https://www.irs.gov/pub/irs-pdf/p463.pdf(disregard portion relating to entertainment)

In order to deduct an expense for travel, you must be required to sleep away from your home (or your “tax home”). You can deduct travel fare (airfare, bus tickets, etc.), taxis, dry cleaning, laundry, baggage, lodging, meals & tips.

All of these expenses are claimed at 100%, except for meals, which are claimed at 50%. The same rules apply to meals expensed during travel as regular business-related meal expenses.

If you are traveling for work but extend your trip for personal reasons or use a portion of your trip as a vacation, you can only deduct expenses related to the business portion of your trip. If your trip is primarily personal but you do business while traveling, none of the expenses are deductible except for those specifically & entirely related to business.

https://www.irs.gov/publications/p463#en_US_2017_publink100033930

If you take a family member or friend with you, those expenses are not deductible unless that person is also your business partner or has a bona fide reason to be traveling with you. You may claim travel expenses for a “business associate” (employee, a person with a bona fide business purpose for travel, or you would be otherwise allowed to deduct their travel expenses). “Bona fide business purpose” means that you can prove a real business purpose for the individual’s presence, and “incidental services” (typing notes, entertaining customers) doesn’t count. 

Home Office Deduction: https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction

https://www.irs.gov/businesses/small-businesses-self-employed/simplified-option-for-home-office-deduction

https://www.irs.gov/pub/irs-pdf/i8829.pdf

https://www.irs.gov/pub/irs-drop/rp-13-13.pdf

If you work out of your home and it is your primary place of doing business, or if you use your home to store supplies for your business, or if you use your home to meet clients, you may qualify for a home office deduction. You can figure only a portion of a room used for business if only a portion of that room is used.  You can also deduct for use of a free-standing structure, such as a studio, if you use it regularly & exclusively for business. In that case, it does not need to be your primary place of business. 

There are two ways to claim the home office deduction:

  • If you’re using the “simplified method” you can take a “deduction for home office use of a portion of a residence allowed only if that portion is exclusively used on a regular basis for business purposes,” where that portion of the residence does not exceed 300 square feet. Using that method, you’re allowed a deduction of $5/square foot. You can also deduct things like mortgage interest and real estate taxes. Ex: The spare bedroom which you use exclusively & regularly as an office & filming space is 10’x12’. That’s 120 square feet and offers you a $600 deduction.
  • If you choose to use the “regular method,” you have the additional benefit of carrying over any amounts not allowable on this year’s return (maybe you’re downgrading to a smaller office this year). You’re also allowed to report your specific expenses for that space, expressed as a percentage of your overall space. Ex: You use 12% of your home for business, and thus you are allowed to deduct 12% of your rent or mortgage and are also allowed to deduct 12% of all other expenses for that space, including heat & electricity. Let’s say you pay $2000 a month for rent and $200 per month for electricity/heat. Your deduction for the year is $3,168. You must keep records.

I recommend that you pick a method & stick to it, as things get more complicated when you switch from one to the other between years. If your gross income from your business is less than your expenses, some of your deductions are limited.

Cell Phones, Internet, Computers: 

https://turbotax.intuit.com/tax-tips/small-business-taxes/mobile-phones-internet-and-other-easy-tax-deductions/L8dHBvBxu

You can only deduct the purchase of a cell phone at 100% if it is used exclusively for business. The same goes for your phone bill. If the phone is also for personal use, you can deduct both the purchase & the bill at a percentage. If the item is used in a manner that is reasonable for your business, it shouldn’t be a problem, but be conservative in your deduction percentage. 

Whether or not you deduct a portion of your internet/cable bill, and how much you deduct, is determined by the nature of your business and the ratio of business to personal use. This is one of those times when you need to determine how much risk you’re willing to take. My accountant told me that I should not deduct more than 50% of my internet bill. My internet bill is 50% of my cable bill. So I deduct 25% of my entire cable bill. If I have any additional personal purchases associated with either, I exclude those purchases.

This logic can also be applied to any device you purchase for business use. Are you sure you never use your laptop for checking your personal email or looking up the weather? Then you can deduct the purchase of a laptop at 100%, but be aware that a large purchase is more likely to be a red flag. 

Website Expenses: https://accountants-community.intuit.com/questions/236274-what-expense-account-do-you-put-website-hosting-under

I’m including this section because shortly before wrapping up my books for the year I wondered if I should be classifying all of my website expenses in the same category. If you’re not using Quickbooks or some other bookkeeping software, or if you’re filing as a sole proprietor rather than a business entity, this might not be as relevant to you. But if you’re wondering how to classify such expenses, the article above is perfect. If your website is informational only, it should be classified as “Advertising and Promotion” but if you sell anything on your site, then the expenses associated with that site are classified as “Cost of Goods Sold” because the site directly generates income. I have two websites: one is informational (a “link dump”) and one is CoGS (a pay site), so I classify the hosting costs, registration costs, SSL certificates, etc. for the two sites differently.

If you have subscription costs associated with either type of website, you can choose to classify those expenses under “Subscriptions and Dues”.

Business Use of Car: https://www.irs.gov/tax-professionals/standard-mileage-rates

https://www.irs.gov/publications/p463#en_US_2017_publink100033930

If you have a car you use only for business, you can deduct all expenses related to owning & operating the car. If you use your personal vehicle to travel between your residence and place of business, or to attend business meetings, etc. you can claim your mileage. Some accountants will tell you that you must keep a mileage log which includes both personal & business travel. 

House Wife Rule: I have no links for this section, as it’s essentially just a camgirl legend. I have only stories, passed on to me from other industry folks and from accountants, to support this outdated, misguided rule. The story goes: If a housewife would use it, you cannot deduct it. What does that mean? Simply, you’re not supposed to claim your dildos, panties and make-up. If you’ve ever done your own taxes before becoming self-employed, maybe you noticed that there’s a deduction for work-related uniforms (or items) which are required for you to do your job. Steel-toed boots, waitress aprons, and non-slip shoes are good examples. 

However, it gets a bit murky when you’re talking about things like nail polish, make-up, baby wipes, dildos, rope, corsets, thongs, and lube. 

When I spoke to my accountant about this, he said it’s really all about interpretation & intent. He explained that if it’s used exclusively for business, I can claim it. If it’s purchased in excessive quantities that seem unreasonable for the average tax payer, I can claim it. Examples: Make-up used exclusively for filming and the 50 pairs of expensive pantyhose I might buy in a year. Now, make-up is a touchy item. Technically, you’re not supposed to claim make-up unless it’s stage make-up, like the kind you can buy from a specialty store. My response to that is: If I spent $100 on one bottle of spray-on foundation that I would never in my right mind waste on wearing to the grocery store & which I reserve only for filming, shouldn’t I be able to claim it? That’s really up to you to decide. This is purely a risk tolerance choice. In the very unlikely event you’re audited, can you justify your deductions to the IRS? Is the risk worth the deduction? Talk to your accountant. 

What forms should I file?

There used to be 3 varieties of the main tax form: 1040EZ, 1040A and 1040, but now there’s only the 1040. I’m listing only the most commonly-used forms below. You need to research & decide exactly which forms apply to your tax situation. If you’re using tax software, it will tell you which forms you need to file.

https://www.irs.gov/businesses/small-businesses-self-employed/which-forms-must-i-file

Schedule 1: alimony, business income, capital gains of losses, rental income, unemployment income, HAS deduction, student loan interest, retirement contributions

Schedule 3: credit for child care expenses, education credits, general business credit

Schedule 4: Self-employment tax, penalty for not having health insurance

Schedule C: This is the main form for reporting your profit and loss from your business

Schedule SE: calculates the self-employment tax.

Schedule E: This IS the 1040

LLCs: 

Single-member LLC: 1040, Schedule C, E or F

1065: If you’re an LLC with more than one member

8832: If you’re an LLC but would rather file as a corporation (partnership)

If you’re either of the two classifications below, I do not recommend doing your own taxes. There are special compliance issues that affect these classifications and if you do it wrong, the government can take away your endorsements. 

S-corp: 1040, 1120-S, Schedule K-1 for each shareholder

C-corp: 1040, 1120-W, Schedule K-1 for each shareholder

This is NOT a comprehensive list of forms that you might be required to file. Again, using an online tax service or a CPA is the best way to ensure that you’re submitting all required forms.

Estimated Taxes

https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

https://www.irs.gov/payments

You must pay estimated taxes if you are self-employed and expect to owe $1000 or more in taxes for any given year. If you are a corporation, you must pay estimated taxes if you expect to owe $500 in taxes. This number is based on your prior year’s return. Let’s say you owed $1500 in taxes last year. If this is your second time filing SE, you’re required to make estimated payments on 90% of the tax you owed last year, so in this case you would make 4 equal payments of $337.50 each ($1500 x 0.90 / 4). In some cases, you’re required to pay 100% of your prior year’s owed taxes. Use form 1040-ES to pay estimated taxes, or do it online.

Figure your estimated taxes:

Individuals: https://www.irs.gov/pub/irs-pdf/f1040es.pdf

Corporations: https://www.irs.gov/pub/irs-pdf/f1120w.pdf

If your income increased significantly and your deductions did not increase as well, then you’ll want to make higher payments. If this is only your second year filing, it might be a bit harder to determine what your payments should be, but it’s good to look at an overview of your income and deductions. You can also adjust your payments for future quarters if you have a really good quarter. For example, if you’ve estimated that you’ll owe $1000 per quarter but you have a really good few months, I recommend you increase your next payment to cover those extra taxes. In the case of self-employed individuals, a good rule of thumb is to save about 30% of your income every month if you owe states taxes as well, or 25% if you don’t owe state. This varies if you’re a corporation. If you have to pay B & O, you will need to save more for that. If you underestimate, make extra payments. The minimum payments required is 4, but there is no maximum.

Rules for percentage paid listed here: https://www.investopedia.com/articles/personal-finance/020316/estimated-tax-deadlines-2016.asp

The cheapest way to pay is via PayUSAtax.com using a debit card. The fee is $2.55

Deadlines

https://www.irs.gov/pub/irs-pdf/p509.pdf

January 31, 2018: Submit 1099s & 1096 to IRS

January 31, 2018: If you didn’t make your last estimated payment for 2018 & have all the documents you need to file, you can file & pay by Jan 31.

January 31, 2018: B & O Taxes (Only Washington, Ohio, and some parts of West Virginia & Kentucky) & Excise taxes due, if you’re filing yearly. Washington also collects city B & O.

April 15, 2019: Individual returns due to federal & state

April 15, 2019: Deadline for requesting a filing extension for both federal & state

March 15, 2019: S-corp returns due, along with any taxes owed

October 15, 2019: Returns due for those who received an extension on the filing deadline

April 15, 2019, June 15, 2019, September 15, 2019 and January 15, 2020: Quarterly estimated tax payments due.

Note: When you’re classified as an S-corp, your estimated tax payments are based on the amount of money that you owe from your prior year’s K-1 statement(s), adjusted for this year’s estimated income. A K-1 statement shows your “pass-thru” income. If you’re giving yourself a paycheck, you should be withholding & paying payroll taxes. The K-1 statement is your business’ net earnings for the year. Again, I don’t recommend filing S-corp taxes without a CPA.

*Why would I report income not reported on a 1099? If a company was supposed to send you a 1099 but did not, and you choose not to report that income, you are liable for paying back taxes, penalties & fees if that company is ever forced by the IRS to comply with 1099 regulations. This can & does happen. Back in 2012, a camming company was directed by the IRS to issue 1099s for previous years’ payments. I received 1099s for 2010 & 2011 in 2013. Luckily, I had already reported & paid taxes on that income. If I had not, I would have been guilty of tax evasion. At the very least I would have been made to file amendments for two years’ taxes, plus pay penalties & late fees on the taxes I owed, if any. 

About the Author:

Olivia Fyre (aka Lady Fyre) is co-owner of House of Fyre, a porn company which has been operating in the Seattle area since 2012 & began hiring performers in 2016. House of Fyre recently moved to Las Vegas. Olivia runs House of Fyre with her husband Laz Fyre. Together they’ve created over 200 XXX scenes and hundreds of fetish scenes.

http://www.houseofyre.com

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