It’s a new year. Which means our favorite thing is coming up…
That’s right: taxes!
Jokes aside, whatever the due date, we ALL must eventually pay taxes. And it’s no joke that taxes for freelancers and creative business owners are often more complicated.
Last year Amy Northard, CPA, joined Mediavine’s Senior Director of Marketing Jenny Guy on Teal Talk to walk us through taxes as a content creator, and how to start off the new year on the right foot.
You don’t want to miss it!
- The Accountants for Creatives
- Amy’s Youtube
- “How Do I Reach a Real Person at the IRS?” Article
- Amy’s Instagram
[MUSIC PLAYING] JENNY GUY: So that’s a great answer. But I have gotten word from my team that we just showed up on live. I don’t know why it took five minutes for us to get going, but we are just now going. So we were having a fun private conversation just about a minute ago.
Guys if you are just– you’re not just joining us. We’ve been here. But we just got live. So that was a fun thing that just happened that has never happened before.
I am here with Amy Northard. She is a partner at Amy Northard CPA, the Accountants For Creatives. And she was just explaining how she works with bloggers. We’re here to talk about all things taxes. The question I ask you guys to post on if you’re here with us in the comments is, have you already done your 2019 taxes yet? Or are you more or are they wait till the last minute kind of person?
And Amy was explaining what it means to be an accountant for creatives. And can you just go a little bit more over about how you do work with bloggers? And some of the specific things that, questions that they bring to you?
AMY NORTHARD: Yeah. So we work with bloggers virtually, bloggers all over the US. And we do it through video calls, phone calls, emails, those sorts of things. But we work with them to work on things like cash flow, savings for taxes, saving on taxes– not only being prepared for taxes, but also how can we reduce that, how much you’re paying on your income. So we try to help in all aspects of things related to taxes, bookkeeping, those sorts of things. Because you never want to get to the end of the year without knowing or having an idea. Otherwise, it can be really stressful. So helping them throughout the year, instead of just being that one– the account that you just talk to once right around April. Prepare people a little bit.
JENNY GUY: OK. So we just got a comment from Melissa Greeley Olivieri, I just want to make sure I’m saying it right. She says, no, she has not done her taxes yet. She’s in Canada. And this is her first year doing them as a blogger. She’s terrified. And she doesn’t even know where to start.
So we’ll get to you in just a minute. But let me start out with this question that might kind of address everyone broadly. Since we’re all creatives, pretty much everyone that’s watching is a creative in one sense or another, most website owners of their own. Could you tell us any common struggles or mistakes that you see content creators making regularly with their taxes or just general accounting.
AMY NORTHARD: I think, two big ones. One is not worrying about your bookkeeping throughout the year, and just saving that for once the year wraps up. And the reason I think that’s a big mistake is, like I just mentioned, you want to throughout the year what you can expect for taxes.
So forcing yourself. Getting in a good habit of maybe once a month, or at a minimum once a quarter, sitting down giving yourself a chunk of time to get that taken care of. And just kind of like make that the day. You act like you are your business’s SEO or CFO. And spend time really treating it like a business. Even if you consider your blog a hobby, treat it like a business. Because the more you treat it like a business, the more you could potentially bring in through that venue.
So even if you don’t have to sign up for QuickBooks and spend a lot of money on that sort of thing. A simple spreadsheet, a Google doc, or a Google Sheet will work just fine. It’s just putting the numbers into a usable format so you can see what’s coming in, what’s going out, and then plan for things. Especially right now, like having a visual of like what’s coming in, what’s going out, and potentially what can you cut– that is I think it’s really comforting to actually have that information in your hands rather than always being unknown. So figuring that out is the first thing.
And then the second thing is actually making yourself send in those tax payments each quarter if you expect that you’ll owe more than $1,000 to the IRS. And for most states, their threshold is about 500. So what that means is if you were to make $10,000 and you multiply that by 25%, that would mean you estimate you’re going to need to pay in about $2,500 to the IRS for that income. So that’s kind of like your indicator that you need to start actually sending money in.
Right now, we’ll talk about the due dates for everything as far as like the extensions. But you can hold onto that money. The IRS doesn’t pose underpayment penalties if you don’t pay in throughout each quarter. Their way to try to get you to comply with that is to assess any penalties if you don’t pay in throughout the year. So doing that is a good idea.
But if you need to hold onto your cash right now, which is understandable, you can wait until the end of the year to pay in quarterly taxes. But still maybe have it in like a separate savings account so that you have it ready. And then you’re not really hit hard next tax season, with not having that stuff available.
JENNY GUY: So your top recommendation then is to just start estimating your taxes throughout the year, what you’re going to owe. And then setting up a separate account to start siphoning that money off to make sure that it’s there no matter what. And you actually recommend paying it quarterly as opposed to waiting and paying it in a lump sum at the end of the year.
AMY NORTHARD: Yeah. As long as you feel good about your cash flow situation, I do think it’s a good idea to go ahead and send it in throughout the year. That way it’s out of your hands. And you know that the IRS has it. And it eliminates or reduces potential underpayment penalties.
One thing I just thought of also along that topic. You don’t need to have a separate business savings account to put that money in. You can open up something like an Ally savings account personally and move that money there so that you’re at least earning a little bit of interest rather than sitting in your business bank account not doing anything. So keep that in mind. Because income taxes are technically personal expenses, you can move that money into that type of account.
JENNY GUY: Excellent advice. And it would much prefer to be earning even a little bit of interest over just sitting there not doing anything. OK, so let’s talk a little bit to Melissa and in general as well. Essentials, what you absolutely need. It’s time to do your taxes.
And I think most people, if they haven’t adjusted to your way of thinking– which is a great way. Which is less of a one time. It is now the time to do the taxes and make all the adjustments. But treating it more like a year round process. That you’re constantly doing your taxes and making sure that you’re in compliance and in good shape. But what do you have to gather together? Let’s help Melissa. It’s her first time, or first time doing them as a blogger. What do you need to have to have your ducks in a row?
AMY NORTHARD: Yes. So the general process that I’m abut to explain would apply to Canada and the US, essentially any country. But then some of the tax forms that I might mention are going to be US specific.
So in general, what you want to do is what practical steps I would do if I hadn’t done any bookkeeping for all of last year. I would go to my bank account. If it’s a business account, great. If it’s a personal account, that’s fine too. But export all of your transactions for last year into a spreadsheet. They usually have a way for you to select the whole year. And then export it into CSV file.
And then from there, I would delete a lot of the extra stuff. You really only need to have the date, the amount, and the description in there. If your stuff is mixed with business and personal, delete out all the personal stuff. And then add in a column for the categories. So just go line by line. If it was income, call it income. If it was supplies, go work through down through your list. Don’t get hung up on what to call something. It’s not super important.
And the reason is because you’ve already determined that it’s a business expense at this point. So the IRS isn’t going to audit you just to change the title of something. Like they’re not going to say, oh, you listed that as supplies. We want it to be called office supplies. It doesn’t matter what category, really. So work through that.
And then you can either do like a sort within Excel. Or if you want to get crazy, do a pivot table. There’s a lot of options for sorting that information which will tell you the total income and then all of the expenses. If you’re using a tax program like TurboTax, or an online program, you can plug those totals in for your business income and expenses and that’s pretty much it. So that takes care of your business side of things.
You want to make sure when you’re doing your own taxes that– in the US we have 1099s. So you want to make sure that the income that you report on like a Schedule C, that gross income– before any expenses are taken out, that number is equal to or greater than the amount that you’re reporting on your Schedule C. Or the amount that you have been reporting on 1099s.
So if I got a 1099 for $10,000 but I only saw $9,000 of deposits into my bank account, if I only reported $9,000, it’s like an instant letter from the IRS. You will get one so fast. Because they see a mismatch. They see someone said you made 10,000 and you’re only reporting 9. So that’s one of the huge things that can really freak people out. Even if the net amount is the same, you have to really be careful of that.
JENNY GUY: No, but yes, I would definitely say that no one is happy with a letter from the IRS. As much as we all like mail, that is not the kind that we want. So Matt Hawford came in and said hi. He said the biggest area of taxes I struggle with are what I can and cannot write off, especially with family members who are part of a, quote, work trip. Conducting research is so vague. And I tend to write it all off. But it does keep me up at night sometimes.
AMY NORTHARD: Yeah. So the IRS is not, they’re not really black and white about this type of thing. So it’s really on you to determine. And I kind of, like for my own business, I kind of do a gut feeling. Like does this feel more like a personal trip that I’m trying to disguise as a business trip? Or is part of it business?
So if you’re doing a work trip and a few days of it are to speak at a conference or attend a conference. But then you tack on extra a few days at the resort to hang out with your family. You can deduct your travel there. You can deduct your travel home for yourself. And you can deduct your hotel nights or Airbnb or whatever while you’re there for the business meeting. Everything else, meals, hotel, those that are incurred when you don’t have a business purpose need to be left off.
And I know that can be that’s a really black and white example. And I know there’s a lot of examples out there where you might be– I’ve had photographers tell me like they went on their shooting images to be sold as prints. So they wanted to just part of their trip to Europe. There’s a lot of different scenarios. And you really want to make sure you’re only deducting the business portion.
So I wouldn’t deduct your entire family meals. If you’re bringing kids, they’re probably not there for a business purpose. Even if you are taking their picture for the blog– just because it’s documented for blog purposes doesn’t necessarily mean it should be a business expense.
JENNY GUY: That’s helpful. And maybe not what everyone wanted to hear, but definitely helpful. No, it’s better to be safe than sorry than to have someone come back. And have you ever seen the IRS come and say come back on someone deducting something like that as a business expense? Like a trip, a work trip that ended up being– and I think that I can see travel bloggers getting into that all the time. They’re bringing their family in some blogs. We have several that we work with at Mediavine that are family travel blogs. So the brand is about having your whole family with you when you travel. So have you seen the IRS–
AMY NORTHARD: I haven’t personally had any of my clients have any problems with it. But the more income you make, the larger those deductions get, the bigger chance you have to be selected for an audit. So you just need to be really, really careful the bigger that gets that you’re documenting all of that. Like if you are traveling all year long, you need to have– I would have a spreadsheet of like what the purpose was of this trip. And the more documentation the better for that type of thing.
JENNY GUY: Fantastic. OK. Melissa had another question for us from Canada. We’re going to get to more on this, but let’s get her in now. She said which TurboTax would you suggest for us bloggers?
AMY NORTHARD: So I’ll be honest. I’m not like, I don’t know a lot about all the different types of TurboTax. I think if they have the option, I would start out with their base option. And then they’re going to ask you a bunch of questions and it’ll lead you into their more expensive plan. So start with the baseline and add what you need.
Since I’ve been a CPA and work a tax room, I haven’t had the opportunity to go through and use something like TurboTax or H&R Block. I just have kind of a vague understanding. Yeah.
JENNY GUY: Start out with your base. Start out with a minimum. And then add a la carte or answer the questions to get where you need to go, Melissa. OK. So the giant elephant in the room of every room of every life of every conversation is what’s going on with COVID-19 and the coronavirus? And due to that, we have had tax day postponed from April 15th to July 15th of this year. Which is awesome for some procrastinators.
But what impact will this have on small business owners? What if you’ve already done your taxes. Good job everyone that has done that. Will everything be delayed, including potential refunds? What is this going to mean?
AMY NORTHARD: So actually, if you have already filed or need to file, they are really prioritizing getting those refunds out to people. Because that’s kind of a form of stimulating the economy, is getting that money back out so that you can use it to support yourself.
So if you are a procrastinator but you think that you’ll get a refund, it’s at least worth getting your return prepared. If you aren’t ready to file it, that’s fine. But it can give you an idea. Now if you’re going to have to owe, you can make a plan for it. If you are getting a refund, then get that filed ASAP so they can start processing that.
The deadline is for federal taxes that got extended. A lot of the states haven’t matched that or posted anything about it. So you want to check with your state because you don’t want to get dinged there with failure to file penalties. If you want to wait, you may need to at least file an extension in your state so that you don’t get hit there. Some states are still requiring that you file by April 15th, and then you have the extended time to pay. It just really varies by state. So check on your state’s department of revenue website and confirm before you just brush it off to the side.
JENNY GUY: I’m going to keep baking bread. I’m not going to worry about it until July 15th. Amy and I were talking before about baking bread, and we’re both getting into that more now that we’re all home. OK. So how does the new deadline affect quarterly tax payments specifically?
AMY NORTHARD: So right now, the way things stand right this minute, the first quarter payment has been pushed to that July 15th deadline. The weird thing is, though, the second quarter payment is still due June 15th. So that means it’s a month ahead of the first quarter.
From what I’ve seen, the stimulus package they’re working on passing right now addresses that and will probably update that second quarter payment so that it’s not in a weird order. So just keep an eye out for when that eventually passes. And if you are one of those people that pays quarterly, habitually keep an eye on that. Because that will allow you to keep more cash in your pocket if things are tight.
AMY NORTHARD: Fantastic. OK. So you mentioned filing an extension. For those of us who’ve never done that, what does that entail? What do we need to do to file an extension? And are they separate for state and federal? And how do I do this?
AMY NORTHARD: So some states do accept the federal extension. A super, super easy way to file a federal extension if you get to July 15th, and you’re like, there’s just no way. Maybe you’ve had a bunch of other stuff going on and you just can’t get it done by that time.
If you go onto IRS.gov/payments you can file an extension. You can put in– I think maybe the minimum is $10. But you can make a payment towards an extension on their website and that automatically files an extension for you. And then when you go to file your taxes for 2019, however much you paid with that extension, you want to make sure that shows up as an extension payment on your taxes. So that’s the easiest way that I found if you aren’t working with an accountant on your taxes to get one filed. And you have that confirmation right there for you.
Once that’s sent in, then I recommend googling does my state, insert your state, accept the federal personnel extension. A lot of states accept it. But there are still quite a few that don’t. And you have to physically file an extension form with the state. So to get like for that, if you need to file one with your state, google your personal income tax extension. That should bring up the form. Some of them will have an online filing option.
Some of them, you’ll have to physically print out the form. If you’re going to make a payment with it, write out the amount you’re paying, send in a check, and get it in the mail. And you need to have it postmarked by the date that your taxes are due. So if your state is still sticking to that April 15th deadline, you need to get that extension sent in by that time.
JENNY GUY: Speaking of the fact that we have an extension. How do we get our taxes done while in quarantine? What do we need to do? It’s going to make it a lot more complicated. Do you have any tips for people that are stuck at home and trying to do their part to flatten the curve and self isolate.
AMY NORTHARD: So there’s a few options. We’ve already talked about Turbo Tax, H&R Block. There’s tons of online DIY options out there. So take some time if you want to go that route. Gather up all of your documents. I think it’s really helpful if you want to have them in a Dropbox folder. Have them all in one place so that you’re not doing part of it, and then you have to set everything down and go find your W-2 and that sort of thing.
So gather everything up. Get all your business numbers in order. And then sit down to work through all of their questions. So that’s probably going to be the most accessible.
If you traditionally work with an accountant that you’ve had to go into their office and sit down with them, some of them have been able to transition to an online or virtual format. So check with them about how they want you to deliver your tax documents.
If that’s not the case, there are a lot of virtual accounting firms out there like mine who are already set up to work virtually. So we use online file sharing. We don’t deal with any paper. We’re a paperless firm. So we send in your documents. We prepare the return. We ask any questions. And then we send you a return to review. And then we e-file it. So it’s pretty easy. Whether you do it yourself or you decide to hire somebody, there are a lot of options still to get it taken care of.
JENNY GUY: Excellent. All right. So we’ve given you some ways to get yourself still taken care of. Don’t wait until July 15th if you can avoid it. But if you are having a situation where there’s some tight cash flow– which we all feel that right now– it’s OK to not, to be holding off and to be looking for those different ways that you can defer.
OK. What are the best ways as bloggers and content creators, like our audiences, to better prepare for taxes all throughout the year versus waiting until tax time? Are there any specific programs or systems you can recommend? The best accounting software, maybe your favorite spreadsheet tool, just give us the whole shebang of everything. I know you mentioned Quickbooks, so I’m excited to hear about that.
AMY NORTHARD: Yeah. So if you do find yourself with some extra time at home, besides breaking bread and starting a garden or whatever you want to do. Now could be a good time to actually take some time to learn how to use Quickbooks. It’s usually one of those programs that I tell people, if you have the time– you need to have a significant chunk of time to go through some tutorials, and learn how to do reconciliations, and essentially learn how to use it appropriately, because it can get really hairy really fast if you don’t have an accounting background.
So they have a couple different levels of it. Their QuickBooks Self-Employed is the one that they’ve really taken away all the bells and whistles and tried to simplify it so that you don’t make a mess of it. And so if you are worried about that, that’s the one I would go with. And I think sometimes it’s, like, $5 a month. It might be a max of $10 a month. So that one’s pretty affordable.
Another program that is actually free is called Wave apps. Their website– they have invoicing, just like QuickBooks and a lot of the other ones. So if you’re not willing to take on any additional expenses, theirs is a great program to look at. They have tons of tutorials. But that’s another one you really need to spend some time figuring out, like, how do the transfers work? So that you’re not duplicating your income.
When I started my business, I was fully into spreadsheets. I loved just how easy they were to manipulate. I still use a lot of spreadsheets in my business. So if you feel the hives coming on when we’re talking about QuickBooks, don’t feel like you need to go that route.
I already talked about using a spreadsheet if you’re in a pinch to figure everything out for last year, but it can also be just a really good tool for planning for this year. We’re using it to clean out future months for our clients. We can see how much money we have left over after expenses are taken out, and kind of plan budgets for the rest of the year to make sure that we feel comfortable with being able to keep the business up and running.
So I’m a huge fan of spreadsheets. I know there’s tons of different kinds out there. We use a lot of Excel, Google Sheets. There’s Airtable out there. So tons of free options for you to look at. And make them as fancy or not fancy as you want, as long as you’re able to get the information that you need from them.
JENNY GUY: That’s great advice. I love a good spreadsheet, too. And I also have become an Airtable convert in recent months. So I love both of those. And I think they’re both awesome and can do a lot of really powerful things for you to take some of the guesswork out of all this.
So Matt Hoppert says, “Are there any tips for creative write offs beyond the basic things we all usually write off. But I’d love to have more deductions to offset taxes. This seems harder to do when you are the only employee and work from home.”
AMY NORTHARD: Yeah, it’s tough. And usually, my go-to one is to tell people to try to contribute to retirement. But in this type of economy, contributing to a retirement, if it’s far off, might not be your best investment right now. It might be good to invest back into your business in terms of education, growing your offerings, and those sorts of things so that your income can grow exponentially in the upcoming years.
So my go-to of retirement contributions isn’t necessarily the best option. But if you do have enough cash flow available, a good SEP IRA is a good option. It reduces your taxable income. So it doesn’t reduce your self-employment income, but it does reduce that income tax that you would pay. So that’s something to look into.
Let’s see. If you use your cell phone for business purposes, you can deduct the business portion of your cell phone bill. So we probably all still use our cell phones for at least a little bit of personal use. So unless you have two separate cell phones– one where you’re only using it for business, and then one you’re only using for personal– you want to estimate, to the best of your ability, how much are you using that cell phone for business purposes? And then that’s something you can deduct. I don’t see it being provided very often, because people just think of it more like a personal thing. So that’s one thing.
And then even for us work-at-home people, if you are having to go to the post office, or if you are a food blogger, and you have to go to the store to get groceries to make a recipe, every little business-related trip away from your home base can be deducted. So use a spreadsheet. If you find yourself doing a lot of those trips and it’s hard to keep up with a spreadsheet, MileIQ is another good option for tracking that. So that’s another kind of hidden one that a lot of work-from-home people don’t think about, is just those little trips that seem normal and not deductible. Those can be deducted, too.
JENNY GUY: Very helpful. And who would think that you could deduct just a trip to the store? But that’s fantastic. So you said MileIQ is a good system for keeping track of those trips. Do you have any other expense tracker tips, or software that might be great, or apps, even, to put on the phone?
AMY NORTHARD: So I wish that I was sponsored by QuickBooks, but I’m not. But they have apps for their different levels of software that you can have on your phone. I think Wave has an app, too. But it’s nice, because they have little in-app cameras that you can take pictures of your receipts.
Another free option would be– I have Dropbox on my phone, and they have a scanning option. So you can have a receipt folder and just scan your receipts right into there. I would put a date on them so that they’re easy to find. But you don’t need to go crazy and have a bunch of folders and subfolders for your receipts. You just need to be able to have them accessible if the IRS were to request copies. And digital is completely fine. They understand that we live in a more paperless world, and they’re completely fine accepting digital copies of things.
JENNY GUY: That is good to hear. It is a digital world. Matt said, “This live session has been super helpful. Learning a lot. Thanks.”
AMY NORTHARD: Good.
JENNY GUY: Yeah. Thank you, Matt. OK. So for people who have full-time jobs and the side hustle, which is typically when we’re dealing with Mediavine and our audience– their side hustle would be their blog– is there anything special they should do when they’re preparing their taxes?
AMY NORTHARD: So one thing to keep in mind– if you have a full-time job, and then this is just a side hustle– is, your full-time job may pay for some or all of the taxes that you generate from your business. So what I would do is I would look back at your prior year return.
If you have the business on there for that year, check and see how much of a refund, if any, that you got. That can kind of give you a hint as to, do I need to actually send in the typically recommended, like, 30% of your profit for taxes? Or can I back that off a little bit, because my day job is paying for some of that tax? So that’s one thing to keep in mind.
Also, the home office thing– if you are regularly and exclusively using a space in your home– it doesn’t have to be an entire room. It could be a little corner in your basement or something like that. But as long as it’s not part of your kitchen or your living room where your family lives, you can still deduct a home office space.
They might come back eventually, but they got rid of that home office deduction for day jobs. So if it’s related to W-2 income, they got rid of that a couple of years ago. But you still have that opportunity as related to your blog. So that’s a good way to deduct an expense you would be incurring anyways, but now you get benefit from it.
JENNY GUY: Love that. That’s our favorite kind of thing. OK. If you are deep in the weeds of procrastination– like, in the forest. It’s far. It’s dark– and you don’t have any good systems in place, what are some small steps to make accounting seem like a less daunting task for you?
AMY NORTHARD: I think the very first– and I think, probably, the easiest thing to do– is, if you don’t already have a separate business bank account, set that up. If you’re a sole proprietor, then you can even use a separate personal checking account where you only have all of your business transactions flow through. If you’re an LLC, S corporation, you’ll want to have a separate actual business account with your bank.
JENNY GUY: Hold, hold, hold. Tell us what all those things are, and what that means, and why we would be one and not the other.
AMY NORTHARD: So the three statuses I mentioned– sole proprietor, single member LLC, or just a regular LLC, and then an S corporation– sole proprietor is what you are as soon as you open a business, basically. As soon as you start making money, that’s the default. You are a sole proprietor, whether you have filed anything or not.
JENNY GUY: My lemonade stand– I am a sole proprietor of my lemonade stand.
AMY NORTHARD: Exactly.
JENNY GUY: Fantastic. Or the bread– I’m going to sell the bread that we’re baking.
AMY NORTHARD: Yeah.
JENNY GUY: People will buy it.
AMY NORTHARD: So that’s the easiest one. You don’t have any state fees associated with that. There’s just a lot less regulations. The downside to that one is you and the business are one and the same. So if something happens, then your personal assets are at risk.
So kind of the next level up is becoming an LLC. That separates you as you, the individual, and then you, the business. So in order to keep that separation, though, you have to have a separate business account. You can’t be using your personal account for business expenses all the time, or vise versa, using your business PayPal account to pay for personal things, because it’s easy and you have money in there. So you just have to really focus on keeping that separate in order to get the benefit of the LLC separation.
But from a tax perspective, there’s no difference. If you are a sole proprietor and you become an LLC, you’re still going to pay the same amount of tax. You’re still going to file the same types of tax forms. And then the S corporation’s kind of that next level up. So I typically recommend that for people who are making a profit. So that’s income left after expenses of about $50,000 or more. And that threshold gives them enough profit for the tax savings to be larger than the additional expenses that they’re going to have to pay for by becoming an S corporation.
So those are the different levels. But if you are an LLC or S corporation, then get that separate bank account. A lot of banks– you can set them up online. A lot of banks aren’t doing in-person meetings right now, but you will still be able to do a lot of it over the phone or online. So take that step. It’ll feel really good to check that off. And then I have mine linked to QuickBooks, so I just leave it up as one of my 50 tabs on Google Chrome. I leave it up–
JENNY GUY: So many tabs.
AMY NORTHARD: And I just go there. Every day, I click on it, I refresh my transactions, and I categorize them. That way, I have maybe five to 10 transactions to deal with rather than hundreds, if I were to wait towards the end of the quarter or whatever. So if you can keep up with it, then it will be a lot easier. Even if you’re just using a spreadsheet, adding those in as they happen rather than saving that step up will just be less overwhelming, and you can keep up with it. So that’s what I would recommend.
JENNY GUY: And then I know we talked about it, that it doesn’t really matter earlier what you name those categories. But can you give us just a basic overview of potential categories that people could have, just if they’re feeling a little bit like, I don’t know. I bought paper, and I have dog– I don’t– I got a course.
AMY NORTHARD: Yeah. So a great place to start would be just to google the Schedule C form. So in the expense section, they’re going to give you a lot of different types of expense categories, like advertising, insurance, interest paid on credit card bills, office expenses, supply. So they’ve got a lot of those basic ones.
But then, at the very end, they have one called “other expenses.” So that’s where, if your stuff doesn’t fit nicely into one of the categories they put on the main page, on the second page of the Schedule C, you can, essentially, make up your own categories. So if you find yourself buying a lot of things that you can fit into a category– let’s say you buy a lot of props for images for your blog. You could create a category called props expenses and do that.
But what you don’t want to do is have a category for paper expense, a category for pen expense. You want to group as much as you can into a category that makes sense, but you want to be careful that you don’t have, like, $3,000 in “miscellaneous business expenses.” You don’t want to have just a bunch of random stuff put together, because then the IRS is going to be like, oh, what are they hiding in there? So try to give it your best category name so that it’s descriptive but not too specific.
JENNY GUY: So speaking of that, what are the biggest red flags for the IRS? What are the things that are– like you just said, having random thousands of dollars in a category that isn’t specific and isn’t clear is one. What are some others that we can look out for?
AMY NORTHARD: So one we already talked about would be having your gross income not match the total 1099s that the IRS has on their end. So that’s going to be an instant– they don’t even have to think about it. They’re going to send you a letter type situation.
JENNY GUY: Got it.
AMY NORTHARD: I’ve seen audits happen. Now, one thing I want to say– I mentioned audits. A lot of times, if they just send you a letter and they say, give us the detail, they’re not sending a scary person to your house and making you sit down and tell them your life story.
An audit’s not that scary, typically. So usually it’s just sending them backing documentation. Then there’s an agent that looks it all over and says, yes, I agree with this, or, no, here are my proposed changes. So I just want to get that out there. It’s not super scary if it happens.
Another trigger could be if you had– let’s say 2018, you had $3,000 of travel expenses, and then 2019, you report $60,000 of travel expenses– a jump like that in that type of category might tip them off to say, maybe they put in a family travel– a travel abroad type thing and stuck it in here. We want to know more.
So they’re going to ask you to provide receipts and details about all the travel, and that sort of thing. So it’s big jumps like that. Or maybe, every year, you have $20,000 or $30,000 loss generated by your business. If that happens once or twice, it’s not a big deal. But if it’s like, every single year, you have a huge loss, then they may also want to know what you’re doing.
JENNY GUY: Excellent. Those are great things to avoid. So speaking back to the proposed stimulus that we’re having, and that hopefully will happen, how will that affect our taxes for 2020? What impact might that have on all of us?
AMY NORTHARD: So from what I read– because they’re still working on passing it. So nothing is set in stone at this point. But from what I’ve read, they will make those payments based on your 2018 or 2019 taxes. So if you didn’t file for 2019 but you have filed for 2018, then, if you had direct deposit information in there on your return, they’ll use that to direct deposit the amount that you qualify for.
Then when you file taxes for 2020, they will, essentially, even it out. So on your 2018 taxes, maybe you made way too much to qualify. But when you file your 2020 taxes, and your income was below a certain threshold, and you should have gotten it, but you didn’t, then they’ll give it to you as a refundable credit on your 2020 taxes.
So that’s just something that I’ve read. It’s not set in stone for that. But they’re kind of going back to when there was a stimulus payment paid out– I think 2008 was the last one. So they’re guessing that it’s going to kind of follow similar guidelines as to what they did with that.
So if you have not had a refund in the past, and you’ve paid, so they don’t have your direct deposit information on hand, they will mail you a check. So if you’ve moved recently, I recommend calling the IRS. Well, first of all, you can file your taxes for 2019 with the new address. That’s going to probably get it changed the fastest. If you’ve already done that, and it has your old address, then there are change of address forms on the IRS website.
From what I’ve read, since it will impact where the checks go, they might prioritize getting those processed, because they usually take six to eight weeks to actually get processed. But hopefully, since it’s such an important thing to get taken care of, they might bump that up and make that a priority. And then you could, potentially, call and make sure that they have the correct address on file. Let’s see. I think that was it.
JENNY GUY: So is there any way to petition the IRS for if you know for a fact that you have changed income tax brackets since the 2018 was filed? Is there a way to petition them and maybe get that money faster than waiting for a 2020 credit if you’re needing it now?
AMY NORTHARD: So they’re either going to base it on 2018, or if you– they’ll base it on 2018 if you haven’t filed 2019. If your income was too high in 2019, and you’re expected to go way down in 2020, we’re kind of into the unknown right now.
JENNY GUY: For sure, in more ways than one.
AMY NORTHARD: They’re probably not going to have some manual action where you call and request that.
JENNY GUY: Sure. That’s understandable. OK. So we are nearing the end of our hour here, so I wanted to give you a minute for our last question, which is going to be, what is the biggest mistake you see when helping your clients prepare taxes? Just general question– or the best tip that you could give for somebody who either has filed them or is getting ready to try to take care of them from home from self-isolation.
And guys, I’m going to give a quick announcement before we go back with Amy. So next Monday, we are doing a follow-up on the live that I did in the Facebook group with Eric on COVID. We are going to talk about– we just decided this about two hours ago, but we’re going to talk about, blogging is not dead. Because we are aware that, not just in the influencer industry, but in all industry, there’s a lot of uncertainty.
And we are going to get together, and I’m going to be here with Eric on Monday. We’re going to talk about all the reasons why our industry has the stamina to make it through this. And it’s going to be a good hour. We’ll answer all the questions that we can, as much as things are unknown. So join us. That’s going to be Monday at 2:00 PM Eastern. You can find more information about it on the Facebook page.
And then a week from today, it’s another episode of “Teal Talk.” That is going to be surviving slash thriving slash whatever you want to call it with children at home that you are not used to. So we’re going to have a couple of homeschooling experts on. They are Amiyrah Martin from 4 Hats and Frugal and Sarah from the Stay at Home Educator.
They’re two Mediavine publishers. They are both very well-versed in homeschooling. And we’re going to talk about not only ways to keep everyone occupied, but also strategies on how to keep getting work done that you need to do, and be able to maintain your sanity in ways other than wine.
So those are the things we’ve got coming up next week. And both of those are next week. So next Thursday, we’ve got tips for homeschooling and continuing to work with our new circumstances at home. And then Monday, we have Blogging Is Not Dead with our CEO, Eric Hochberger.
We’re going to keep sharing on all of that. Follow us on Facebook to make sure that you don’t miss any of these. And then subscribe to our YouTube channel. If you do miss one, all of those will be uploaded, and you can get back old conference sessions from our past years of those, and lots of educational materials there as well.
All right. Amy Northard, it has been a pleasure to have you. Please answer that last question. What is the biggest mistake you see or the biggest tip you can give for people that are working on their taxes now?
AMY NORTHARD: I would say the biggest tip that I can give right now is the fact that knowledge is power in terms of our stress. So if you are worried that you’re going to owe a lot, get it done. Get that weight off your shoulders. It gives you some time to plan for the tax, whether– worst case, you have to sign up for a payment plan, and that’s not a big deal. So that’s always an option.
And just don’t put it off. I know a lot of people are going to because of that extension deadline. But just spend some time. Get it done. Get that off your shoulders, because we have enough things that are stressful right now. Take that one off the plate and get it taken care of. If you guys are needing a payment plan, states offer them as well.
And there’s even– PayPal Credit teamed up with some online tax payment place to give you six months of an interest-free tax– basically a cushion. So you can use their program. You have six months of interest-free time to get that all paid off. So the IRS offers, like, a 120-day payment plan. That one is a little bit longer. So there are tons of options out there. Don’t feel like this is the end of the world if you do owe with your taxes.
JENNY GUY: Overcoming analysis paralysis. And I lied. There is one more question I was going to ask you, which is, at what point do you recommend people consult a professional to work with someone to help them with their taxes?
AMY NORTHARD: I would say, if you are– partnerships can get a little hairy in terms of distributions and how the tax returns work, as well as S corporations. So those are two that I would say, if you’re at that point, or considering that, start talking with an accountant now– maybe this summer. Summertime is a good time to start interviewing accountants, finding ones that are available and that match your work style in preparation for the next tax year, or tax season.
And then as far as business in general, if you just feel overwhelmed, ask for help. Things can get really crazy if you’re using tons of different payment methods and that sort of thing. So if you just feel nervous, and you’d rather have someone on your side to walk you through everything, that’s another good kind of gut feeling or gut indication that it might be worth talking with an accountant.
If you don’t want to do ongoing services, a lot of accounts are doing consulting. So sit down for an hour and just talk through how to do your bookkeeping or those sorts of things.
JENNY GUY: And that is great advice. And what questions would you ask an accountant that you were shopping, if you were consulting or talking to someone? What would you ask?
AMY NORTHARD: Well, first of all, I would ask, what niches do you specialize in? We, obviously, specialize in creatives, but there are some out there that you can specialize further into just bloggers, or just photographers, or those sorts of things. So find someone that you feel comfortable with, has the knowledge to work with you.
And then, next, talk to them about their preferred communication style. Some people love face-to-face– sit down at a table. Here’s all my papers. Let’s talk this through. If you’re that type of person, then a virtual accounting firm isn’t going to be a good fit for you. So talking through that.
And then, also, a lot of accountants, especially during busy season, can kind of fall off the face of the earth. So make sure that you feel good about the pace that they’re responding to your email or returning your communications, because if they’re slow in the beginning to follow up with you, it’s not going to get any better during tax season.
And that’s probably one of the biggest complaints I see about just accountants in general, is that they’re terrible at responding and getting back to people in a timely manner. So those are kind of red flag things you can be aware of when you’re shopping around.
JENNY GUY: So helpful. Amy Northard. Thank you so much for returning and for answering all of our questions, and getting people set up to get themselves in gear for 2019 and have a good start for 2020. We appreciate it.
AMY NORTHARD: Thanks for having me.
JENNY GUY: OK. Bye, everybody. Be safe. Be well. And we will see you on Monday. Bye.
AMY NORTHARD: Bye.
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