Whether you’re a consultant, private ski instructor, restoration carpenter or a freelance writer, there are a variety of professionals across Denver, Littleton and Aurora who make their living as self-employed professionals. Self-employment has a variety of wonderful benefits, from choosing where and when you work, to selecting projects that cater to your interests and desire to learn. Some salaried or per-hour professionals also seek to earn an extra income outside of their “regular” jobs. Whether you’re a waitress, musician, tour guide, or part-time childcare provider, all income that you make outside of your “regular” job is considered self-employment income under Colorado state and US federal tax laws.
When April 15th rolls around, many self-employed professionals —whether they are self -employed full-time or part-time — run into confusion about filing their income taxes. WHen you’re in a salaried position, your state and federal taxes are subtracted from your paycheck automatically —often with a matching contribution from your employer. When you are self-employed, you don’t have this privilege and must do all the legwork yourself. But don’t be discouraged. By following a few simple steps —and with Advanced Tax Solutions in your corner, filing self-employment taxes in Denver can be a breeze. Denver-area professionals who work as independent contractors, or who operate sole proprietorships are deemed to be "self employed" in the eyes of Colorado tax laws.
When you work with the competent tax pros at Advanced Tax Solutions, you can get through tax season with the confidence of knowing your taxes will be handled in a fast, organized manner that spares you from unnecessary payments while maximizing both your state and federal returns. Advanced Tax Solutions has years of experience helping both independent contractors and self-employed professionals navigate the tricky maze of income tax. Before you get started, here are some tax times every self-employed professional in Denver should keep in mind.
Do I Qualify as Self-Employed for Tax Purposes?
Some individuals earn self-employed income in Colorado outside of their regular, salaried position. If so, you are considered self-employed by both state and federal criteria —if your self-employed, freelance, or independent contractor earnings exceed the allotted earnings limit. You are also considered self-employed if you: are a member of a partnership that carries on a trade or business or if you head a part-time business for yourself. Any "moonlighting" outside of your salaried job where income is self-generated is considered self-employment.
How Much of My Denver Self-Employment Income is Taxable Income?
As of January, 2019, the IRS collects taxes on net earnings from self-employment of $400 or more. Simply put, if you earn a few hundred dollars working a special event, or presenting privately to another organization about your professional role and your self-employment or independent contractor earnings do not exceed $400, you don’t not have to pay taxes on those earnings.
For professionals whose entire income is generated through self-employment, however, the total amount of earnings subject to self-employment tax is generally 92.35% of your all your annual income from self-employment. Net earnings can be calculated by subtracting ordinary and necessary trade or business expenses from the gross income you derived from your trade or business. Colorado income tax is a flat 4.63% of your adjusted federal taxable income. If you are self-employed yet expect to owe the state of Colorado more than $1,000 in state taxes, you will be required to pay state tax payments.
Keep Diligent Records of Income & Expenditures
If you’re self-employed, the number one thing you can do to point yourself toward success at tax time is to track everything carefully —and by everything, we do mean everything. I addition to keeping careful records of all your income, you need to keep clear, concise records of all expenditures related to your work and business. From travel expenditures, to supply purchases, relevant utility expenditures and income earned out-of-state, the trickiest riddles to solve come tax time have their genesis in disorganization and poor record keeping.
There are numerous and varied tax-related documents to keep track of if you are a Colorado-based professional who is self-employed. They include: 1099-MISC forms, receipt of sales, paid invoices, receipts, cancelled checks and deposit slips. Self-employed individuals should also track all spending related to business-related travel, transportation, entertainment, and gifts.
Travel deductions should include even travel by short distances in and around the city where you work. As of 2018, the standard mileage rate prescribed by the IRS was 54.5 cents per mile. Keep in mind, however, that the IRS allowable mileage rates change each year.
When is My Self-Employment Income Tax Eligible?
Your self-employment income is tax eligible the moment you receive it. There is a widespread misnomer that self-earned income is not taxable until you actually cash the check and the funds are physically available. This is not true. There are no tricks to harbor self-earned income to make it less eligible to state and federal income tax laws. In fact, trying to avoid or delay eligible income tax on self-employment earnings can lead to even higher taxes and fees down the road. That’s why keeping your self-employment taxes organized and clear throughout the fiscal year is so key to staying one step ahead.
How Can Advanced Tax Solutions in Denver Help?
If you’re a self-employed professional in the Denver metro area, the tax professionals here at Advance Tax Solutions
can help you with all the legal and financial questions related to your taxes and make sure you submit all the income taxes you owe —without overpaying. If you’re a self-employed professional in the Denver, Littleton or Aurora region who is in a dispute with the the state or federal government over your past or present self-employment tax obligations, Advance Tax Solutions can also work with you to settle your taxes issues in a fair and fast manner. Contact our team today to learn more.