“Tax preparation is compliance work. It’s something that has to be done and it’s really reactive.”
Eric Feldman is the Founder and CEO of Four15 Advisors. Four15 Advisors is a family-run tax preparation and financial services business that specializes in tax strategies to maximizing deductions and reduce tax liabilities, for those in the world of arts & entertainment, advertising, marketing and freelance creatives.
Tax benefits for freelancers and the self-employed.
Eric: “The first few letters of that are free, right? Freelancers get a space for themselves to do what they love to do without feeling like they’re being kept down by the man, and can build their own destiny. Over the last few years, maybe ten years, we really started to go in the freelance direction. We saw such a huge growth within the creative space of companies wanting to look outside of just salaried individuals, to be able to pull from all the talent that’s out there that might be working for themselves.”
Eric: “Home office, cell phone, travel, meals. Those are gone now, if you’re getting paid on salary on W2. Not only do freelancers get that freedom to really forge their own path, but they now also get to still use those deductions to reduce their tax liability as they’re receiving this non-taxed income. Tax change with the ability to reduce your taxable income. The strategies for freelancers have just exploded these last couple of years to really keep more money in your pocket, and really grow your financial freedom.”
Eric: “There’s something that’s called the Qualified Business Income deduction, or QBI. Basically it says for every dollar that you earn from a freelance 1099, self-employed, whatever it is. Non-salaried W2, the government, as long as you fall into a couple different income ranges, is going to give you a 20% reduction and a credit towards that money.”
Proactive planning for Tax Season.
Eric: “A lot of people just assume that going to their tax accountant, CPA, tax guy around the corner, whatever it may be, that you’re doing yourself a service by getting taxes filed. Tax preparation is compliance work. It’s something that has to be done and it’s really reactive. December 31st for most tax loopholes and strategies ends everything. If you haven’t done it, you’re not going to do it. There’s some little things that tax folks can do at tax time to help minimize your tax liability at that point, but when you start thinking about tax planning, you’re thinking about proactivity.”
Eric: “Now’s a great time to start thinking about, ‘What have I done so far this year?’ Now with what’s been going on, I’m sure things are a lot in flux but, ‘What have I done so far? Where do I anticipate going?’ Reaching out to your tax person and saying, ‘Hey, listen. I would love to do some projections. I would love to see what’s going on so that I can plan appropriately, proactively.’ So that when we get to tax season in 2021 you don’t say, ‘Oh, man. I wish I would have changed something last year,’ and leave money on the table. It’s okay to pay your taxes, but no reason to give the IRS a tip.”
Track your expenses and work with a professional.
Eric: “The biggest amount of money left on the table is not tracking your expenses. Whether you use a bookkeeper, whether you use Excel, whether you use QuickBooks. Just figure out a process to start tracking where your money is going. Both in and out. On average, people can save about 3 to $5,000 in taxes by just tracking the expenses. When you track it, you’ll be amazed at how much more you’re actually spending for your business. Then on April 15th, when you’re scrambling just to get documents together, it’s much better to have the actual numbers throughout the course of the year.”
Eric: “It saves you hours and hours at tax time, of putting that stuff together. Number one, track everything. Number two, talk to a tax professional about projections and planning. If you were self-employed freelancer and you haven’t looked at somebody or talked to somebody about entity selection, huge mess. There might be tax savings on the board that you’re not taking advantage of because you’re just going it on your own. Take the time to ask somebody during the year.”