We wanted to get to know Kajli Prince (NAIWE’s Tax Expert) better, so last month we sat down with him. Here is what he shared with us.
For those of us who are putting funds in traditional or Roth IRAs to fund our retirement, the ages 50, 55, 59 1/2, and 72 may have implications for our taxes. Please explain the implications as they relate to taxes for freelancers.
There are really only three relevant ages, with respect to individual retirement accounts, i.e., traditional and Roth IRAs: 50, 59 1/2, and 72. Further, these ages are relevant as pertains to contributions (limits) and distributions.
Individual Retirement Account
Contributions (for 2019 and 2020)
Under age 50 = $6,000
Age 50 and older = $6,000.00 + $1,000.00 catch-up
Note: For a SEP IRA (for self-employed persons) = 20% of net self-employment (SE) income after one-half SE tax deduction, up to $57,00.00. So basically, 20% of the same number the qualified business income deduction is calculated from.
Distributions (for 2019 and 2020)
Under age 59 1/2, distributions (withdrawals) are subject to an additional 10% tax. And if you participate in traditional IRA (not a Roth) and are 70 1/2 years old in 2019 you must take your first required minimum distribution (RMD) by April 1, 2020. If you reach age 70 1/2 in 2020 or later you must take your first RMD by April 1 of the year after you reach 72.
There is no particular significance to age 55. Although, it is a good age to consider your current tax rate and the type of IRA you are making contributions to.
For self-employed individuals, what is considered proof of income for tax purposes?
Documentation as proof of income can be very broad for self-employed individuals. For example, you can record the fact that you paid for goods or services on a napkin while doing a business transaction in a bar. At the end of the day, you just have to be able to show documentation for whatever income and expenses you are reporting on your tax return.
When preparing tax returns for freelancers, what deductions have you seen are the most overlooked?
I would say the home-office deduction. But I think a close second would be retirement tax shelters and credits. I will go into more detail during the webinar, and for now I will say self-employed individuals definitely benefit from some pretty sweet perks.
For those of you who are putting funds in traditional or Roth IRAs to fund your retirement, the ages 50, 55, 59 1/2, and 72 have implications for your taxes. There are limitations when it comes to IRAs whether it is a Traditional or a Roth. The various limitations have to do with income, whether or not you participate in your employer’s retirement account, your filing status, and your age.
You can join in this conversation on March 27, at 7 pm eastern, when NAIWE will host a discussion on identifying and managing difficult freelance clients. The cost for NAIWE members is only $10! Non-members can join for $30. Register today!