How to Do Tax Returns if You’re Self Employed and Broke

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Guest post by John Gillingham, a San Francisco CPA specializing in small business taxes at Gillingham CPA and makes apps to teach accounting and taxes.

Taxes suck. So you are driving around a pink mustached Lyft in order to follow your creative, but less profitable pursuits. Maybe you illegally rent out your rent controlled apartment to Airbnb-ers’ and sleep in a van to scrap together some ends. You sold knives to old ladies. Whatever it is you did to hustle last year, you owe tax and this time the government knows it. Face it, you’re self employed and broke. Let’s make this situation better.

Money in, money out, still have tax to pay

Scrapping together $30,000 a year in business income after some expenses might leave you with a place to sleep, a full shopping cart at Trader Joes, and a couple dates where you had to explain that you actually “like” PBR. All of the money comes in and then goes out, but since you are technically self-employed, are below the poverty line, and might qualify for food stamps – your tax prep software is still telling you that you still owe a few thousand bucks. And you don’t have $500 to get some decent advice.

I have this 1099-Miscellaneaus income, now what?

This is a tax document that tells you and the IRS that you were an independent contractor, also known as being self-employed, freelancer, hustler, etc… You are going to want to file a tax return and if you can’t get it together before April 15th, file a free IRS extension form 4868. Your next biggest step is to come up with business expenses that will reduce the amount your taxable income. Common expenses for self-employed individuals can be mileage, electronics, software, home office, meals & entertainment, supplies, and more. Things like regular meals, dry-cleaning, street clothing, commutes have special rules and often not deductible. Checkout some templates at Gillingham CPA to help you organize this stuff.

Educate yourself with an App

Unless you plan on being truly broke, you will be filing taxes year after year, so learn about it. You might have been taught how to do math in school, but don’t know the difference between a tax deduction or credit, itemized versus standard, or self-employment income versus ordinary. This is ridiculous! That is why I created the Entrepreneur Tax App to give you a 3 hour audio, video, and written crash course. This will allow you to better self-prepare or get more value out of working with a professional.

File for free?

Search “Bay Area” or whatever location, “free tax help” and there are actual volunteer accountants that could help you out! Often times the preparers work under qualified reviewers that really know their stuff… all for free. Or search “free online tax filing” and see what you can do. Sometimes a service might charge for the state filing – but you might even be capable of hacking together the state return once the federal is all done. Free people. Free. Educate yourself first.

Don’t think “retirement account” think “emergency account”

Don’t give up on retirement accounts, such as a Roth IRA – even if it is $100. Even having something, anything, will get you more interested in how these things work and can help you. Most broke folk are afraid of these things because they don’t know how they work or the advantages. But even a small account might even give you a huge tax savings in the form of the Saver’s Credit. These accounts are designed for retirement but can help out in an emergency, even if subject to dreaded taxes and fees. Study Up.

Professionals can be cheap if you hack it

If you walk in, uneducated, to your local tax chop-shop you are going to likely get an expensive product relative to the benefits. This can work, but there are other options. Sites like Upwork.com and Fivrr have tax professionals that might be happy to have a brief chat or peek at your self-prepared tax return. Seek out a CPA – Certified Public Accountant or Enrolled Agent and verify them online. There are a significant amount of highly qualified people out there working for cheap. Sound familiar?

 Disclaimer: Accounting Play and Gillingham CPA content is education and information only. This is not advice of any kind. Please consult an Attorney or Certified Public Accountant.