How to Tackle Your 2020 Taxes

The government could fill out a lot of tax forms themselves but no, we all have to do this — panic, chaos, guessing — instead.

I’m [indecipherable] weeks behind on my taxes, and it’s tax season so every accountant is busier than ever. I need help. You need help. Everyone needs good advice. Like, tip very well the first time you go to a coffee shop and they’ll never forget your order. But that doesn’t solve any tax-based problems! 

So, I asked Laurel Leckert, a Brooklyn-based tax counsellor, to answer some of your questions about what in the *U*# you’re supposed to in order to not end up in tax trouble. 

I asked Study Hallers to send their burning tax questions, and Laurel obliged. We couldn’t get to every question; on the issue of whether you’re in a convenience rule state or if you have to pay taxes on out-of-state earnings, Laurel says “This is a huge question, and it varies from state to state. Ask your accountant!” (She adds “Sorry….”)

The federal tax deadline in the US this year was extended to May 17 for individuals. Most states also extended their deadlines, but be sure to double check with your state’s tax agency to be sure you’re not already late! 

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Study Hall: What’s the deal with the home office deduction? How granular do I need to get with calculating what proportion of my work I’m doing from that home office? If the IRS knocks down my door and finds me working at my kitchen table instead of at my home office, am I going to get fined?

Laurel Leckert: The proportions are about physical space in your home, not about the portion of your work that you do there. Most people are not very granular with this. The tax form (Form 8829) does ask for square footage, but the purpose is to find a percentage — what percent of the floor space in your home is taken up by your home office? Of course the IRS would like you to be as accurate as possible, but most people do some estimating here. If your home office takes up 15 percent of your home and you pay $1,000/month in rent, then your home office deduction is $150/month, or $1,800 for the year.

Remember that a home office is defined as space in your home which is used regularly and exclusively for business, but it does not have to be separated by a wall or other partition. So think about where your desk is, where you store your gear, where you meet with clients, etc. Technically your kitchen table, for example, is not part of your home office because it’s space that’s shared between your work life and your personal life. It’s not used “exclusively” for business. That said, if you sometimes work from your kitchen table, no big deal! You still pay rent and utilities for your home office space even when you’re not using it, and that’s why you get to write it off.

SH: In the same vein, how do work-from-home deductions for internet work?

LL: For other things that are shared between your business and personal life (internet bill, cell phone bill, unlimited MetroCard, etc.), you prorate based on time. Again, the IRS would like you to be as accurate as possible, but most people do some estimating here. Think about how much of your online life is for business and how much is just scrolling social media, catching up on personal emails, planning personal travel, etc. Is it a third? Then you write off 33 percent of your internet bill. Is it a quarter? Then you write off 25 percent of your internet bill.

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More from Study Hall

How to File Freelance Taxes with Laurel Leckert of Brooklyn Coop

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How to Freelance for US Publications from Abroad

Here’s the Best Advice for New Freelance Writers, According to Freelancers

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SH: What are the penalties for not paying quarterly taxes? ([This Study Hall member] has strangely never been hit with any penalty or statement from the IRS even though [they] only file annually and have a separate EIN [Employer Identification Number].)

LL: This is called the underpayment penalty or estimated tax penalty, and it’s calculated along with everything else on your tax return. When your software or tax preparer tells you how much you owe, in total, for the year, that penalty is typically included. You can see it broken out on your Form 1040 line 38 (on your federal return) and, if you’re filing in New York, NY Form IT-201 line 81. 

Those line numbers are for 2020 tax forms — the line numbers may vary year to year, but it’s toward the end of the main form and it’s called an underpayment penalty or estimated tax penalty. The amount of the penalty has to do with how much you owed the prior year, but to give you an overly simplified guideline, you can expect to owe around $30 in penalties for every $1,000 you owe in taxes at tax time.

SH: I’m not sure if this counts as a tax question — do freelancers living abroad qualify for PPP [a COVID-19 relief program for small businesses]?

LL: No, the United States must be your principal place of residence.

SH: What is one thing that you see freelancers do when it comes to their taxes that you wish they wouldn’t?

LL: Not keep track of their income and expenses! As a freelancer, you have to consider yourself a small business and you have to keep your records. It’s crucial! You don’t want to go excavating in crisis mode at tax time trying to figure out who paid you and how much and which 1099s got lost in the mail and who reported more income than they actually paid you…Just keep your records as you go. If you have good, up-to-date records, it will be easy to confirm these things, and it will be easy to have financial reports at your fingertips when things like PPP loan applications come up. 

It doesn’t have to be too complex — set up a Google sheet for yourself, or just keep lists. Whenever you get paid, write it down: who paid you, how much, and on what date. The same goes for expenses, especially if you don’t have a designated business bank account and/or credit card. No one can remember what happened in their bank account 12 or more months ago, and no one likes scanning through a year’s worth of bank statements trying to pick out business expenses. Don’t do that to yourself! Every time you spend money on your business, write it down: who did you pay, on what date, for how much, and what’s the expense category (meals, independent contractors, art supplies, business travel, etc.)

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