Gig Workers and Taxes

Tax Day is fast approaching

If 2021 was your first year in the gig economy then tax time will be full of surprises for you.
Most likely not very pleasant surprises either
Higher than expected tax liabilities
Even some penalties

Not much fun dealing with all of that.

What to do now?
Get some strong coffee (or your favorite give-me-energy drink)
And start on your paperwork.

Process your paperwork (get help, if necessary).
And file your taxes.

Tax time it’s a stressful time for many.

Now it’s the best time to start thinking, and planning, for next year
Think about how to make it easier on yourself when next tax filing comes around

Here are three things to get you started on the right track:

  1. Income
    Keep track of your income.
    Make sure to keep good records.
    The companies you work with will issue you 1099-NEC and other 1099s
    Do remember:
    The companies will also send copies of these forms to IRS
  2. Expenses
    Keep track of work-related expenses: car maintenance and repairs, work supplies, etc.
    These expenses will help lower your tax bill
  3. Taxes
    Put aside ~20% of your income. Save that money for taxes.
    (If necessary, and to avoid penalties, you may want to make estimated payments.)

That’s it!
Develop a system when you se aside time (weekly or monthly ) and do these.
And I promise you:
Consistently doing these 3 things will make tax time much less stressful.

Wishing you success in all you do

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What gets Small Town, USA on the World Map?

Jackson, Wyoming
Population: 10,553 (2019)

A small town.
In a sparsely populated state.

Simple country life style.
Small town not many people know about it, right?

Wrong.

Russian billionaires know about it.
And so do wealthy people from Argentina, India, Italy, Venezuela.

Why?

Two words:
Tax haven

Yes, the rich of the world are moving their wealth to Jackson, Wyoming.
The millionaires and billionaires have their attorneys set up trusts.

Washington Post article:
“Wyoming trust and layers of private companies with concealed ownership – allow the world’s wealthy to move and spend money in extraordinary secrecy, protected by some of the strongest privacy laws in the country and, in some cases, without even the cursory oversight performed by regulators in other states.”

Incidentally, they call this “The Cowboy Cocktail.”
So would you like one?

Better question — can you afford it?

How much money are we talking about?

Washington Post:
“Trust companies in Wyoming now manage at least $31.5 billion in assets, according to the state.”

That’s right.

Law professor Allison Tait, a trust and estate expert, regarding the anonymity/privacy of these trusts:
“It’s like a wrapped gift inside a wrapped gift,” she said. “The more wrapping you put on, the harder it is to figure out if there has been tax avoidance or evasion or even financial crime. Very few people know what you’re doing, basically.”

How is this possible?

It began with a 1977 law.
The brain child of an oil company.

As the years passed the lawmakers “improved” the law. And made it easier for company owners to hide their identities.

Adam Hofri-Winogradow, a law professor and trust expert:
“Wyoming is now among the 10 least restrictive, most customer-friendly trust jurisdictions in the world.”

In the WORLD!
Got that!?

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Absentee leader: the most destructive type of leadership

Distant
Diminished communication
Lack of trust

These are trademarks (just a few) of an absentee leader.

Research published in German psychology journal Zeitschrift für Psychologie:
The effect of absentee leadership is far worse than any other type.

You think this ‘leader’ was bad before?
The impact is much stronger in the current (remote work) environment.
That’s when bad leadership becomes destructive.

As employee you are looking for feedback.
You want to know where/how to best direct your efforts.
But the leader is absent.
You have no guidance.

The results?
Stress and poor performance.

Significant problem
This leader (in title only) has a negative impact throughout the organization.
Heavy price to pay.
For the employees, the organization and its customers.

Why do they get away with it?
Because other (bad) leaders have a more glaring incompetence.
So we prioritize their removal.
And we let the quiet, incompetent (absentee) leader to continue to slow-kill the productivity and success of the organization

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Family Business — Qualified Joint Venture

Husband and wife start a small family business.
And they want to keep things simple.
(Since neither is fond of formalities.
Or too much paperwork.)

At the same time, they do want to make sure they
1. Use the right business organization type for them, and
2. They employ the right tax strategy.

After some research they both decide Qualified Joint Venture meets most of their requirements.

What is a Qualified Joint Venture (QJV)?
As its name imply, QJV is a joint venture where both spouses materially participate in the business.
And elect not to be treated as a partnership.

For federal income tax reporting they are treated as sole proprietors.
The business’ income, deductions, and credits are allocated to each spouse.
(On separate Schedule C.)
According to each one’s interest/participation in business.

IRS requirements for QJV
For the husband and wife business owners (aka the averse-to-paperwork team) the QJV seems to fit the bill for what they want.
But are they eligible for it?

IRS’ requirements for a business to operate as QJV

  1. Not incorporated: if your business is incorporated then you no longer fit the QJV requirements
  2. Partnerships: with the exception of general partnership no other type of partnerships qualify for the QJV.
  3. LLCs: if you reside in a community property state, an LLC does qualify for QJV (just like a general partnerships).
  4. Husband and wife must be the only owners of the business AND materially participate in the business’s operations.
  5. They must file a joint income tax return.

Our friends, the husband and wife business owners, have decided on QJV.
Now they need to move on to the next decision on their agenda:
Who’s the boss?

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Lobbyists, Loopholes, and the Paycheck Protection Program

Want money? No problem. How many millions?
And don’t worry about paying it back.
Enjoy.

What’s that all about?

Paycheck Protection Program (PPP)
The PPP was supposed to help struggling small-business to keep afloat during this economic crisis.
But it turned into “free money,” grab-as-much-as-you-can for publicly traded companies.
(Results of intense lobbying efforts prior to passing the CARES Act.)

Some of these companies are worth hundreds of millions.
These businesses pay seven-figure salary to their top executives.

The only thing ‘small’ about these businesses is their sense of decency.

How much money we are talking about?
The CARES Act allocated $349 billion for PPP.

Funds were completely gone within 2 weeks.

Yes, you read that right: 2 weeks.

True, some of these companies returned the money.
How magnanimous of them, right?
(No. They got caught; and exposed in social-media.
Returning the money was part of their damage-control PR.)

How did this happen?
Well, they didn’t do it alone, for sure.
They’ve had help.

Some say “they took advantage of the loopholes.”
Others say the loopholes were built-in the program.

I do know one thing for sure:

You and I helped as well.
How?
We elect the politicians.
We vote; then we go about our daily life.
And trust that they are doing what they got voted in for.

Meanwhile, big business and other special interests know better how the system works.
They hire lobbyists.
And sent them to Washington.

Then Congress starts giving out ‘party favors’ to the highest bidder.
(Read that: the ones with the best lobbyists.)

And they keep doing it.

Why?

Because we don’t hold them accountable for their actions

What’s been done about this?
No problem, we’ve taken action.
We’ve allocated another $310 billion to the Paycheck Protection Program.

This brings the total up to $659 billion.

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Home visits — once upon the time… and now

Imagine soft music playing in the background.
And a soothing voice saying:

“Once upon the time, we used to get home visits
From the milk-man; the doctor.
Home visits — those were the days.”

Nostalgia for the days gone by

But be nostalgic no more.
Good news: in 2020 home visits are back in vogue
This time from IRS
(Did the soft music abruptly stopped?)

Home-visits from IRS agents


Do you know someone who has an outstanding tax liability?
And has this someone repeatedly ignored IRS’ payment-request letters?
Then you may want to warn them of impending IRS agent home visit.

Yes.
IRS is now going to send their agents on home-visits.
Furthermore, the visit will almost always be unannounced.
(Never underestimate the element of surprise!)

How will you know he (or she) is from the IRS?
Ask for ID’s, obviously.

Your rights as taxpayer:
The IRS officer needs to show you two (2) forms of identification.
That include serial number and photo.
You have the right to request to see both.

Now go make sure you have a fresh pot of coffee on.
You gotta show some hospitality when your friendly IRS agent drops by for visit, right?

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Trade wars

Large tech companies (with global operations) are increasingly on the radar of taxing authorities.
Canada is proposing a 3% digital services tax.
(On companies with more than C$1 billion worldwide revenues.)
The tax is set to take effect in April, 2020.

Tax regulators in Italy, Turkey, Hungary and other countries have either proposed or already approved a digital tax.

France is leading the way.
Its 3% digital services tax applies to companies with over $800 million worldwide revenue.

What do Americans think about this tax?
They say the tax unfairly targets U.S. companies (Facebook, Google, and Amazon).

“The French digital services tax is unreasonable, protectionist and discriminatory,” said top Republicans and Democrats.
(Republicans and Democrats agreeing on something — amazing, isn’t it?!)

The tax has prompted the U.S. Trade Representative’s office to launch an investigation.
The investigation (Section 301)  has found the French tax to be “inconsistent with prevailing principles of international tax policy, and is unusually burdensome for affected U.S. companies.”

The French stand their ground:
“We will not give up on taxation” of digital firms.

Americans threaten to retaliate with 100% tariffs on $2.4 billion imported products from France.
Including French cheese and wine.

And that is really bad news!
What’s gonna happen to all Gruyere cheese lovers?!

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Retirement question — open letter to client

Dear M and J,

Regarding your retirement question
here is some information to help you make a decision.

Taking a lump-sum distribution can be detrimental.
Mainly because “emergencies” always seem to pop up (for all of us).
And before you know it, you’ve spent all the money you had.
Leaving you with nothing for retirement.

Additionally, because these are pre-tax money (meaning this income has never been taxed)
you would have to pay tax when you take the lump-sum distribution.
And that would put you in a higher income tax bracket.

Here are some choices that would not trigger any high taxes for you.
And would keep your money safely tucked away for retirement.

  1. IRA account.

Open either a traditional IRA or a SEP IRA and have the pension rolled over into that account.
You can then continue to make pre-tax contributions every year.
(When you have available funds, of course).

 

  1. Solo 401(k) Plan

This plan is designed for self-employed/individual business owner.
It’s available to the spouse as well.
And you can save higher amounts to this type of plan. (Again, when funds are available.)

 

  1. Monthly payments

You can keep the money where they are and take monthly payments.
As long as the monthly payment provide a good ROI (return on your investment).
If not then either option 1 or 2 would be a better choice.

Fidelity, Vanguard, and others offer IRA’s and Solo 401 (k)
You can decide to stay with Fidelity (where your pension is now) or check out the other guys.

Make sure you find out about fees (if any) to maintain any of these retirement plans.
Even more importantly, make sure their retirement plans allow the rollover (of your pension).
Hope this information makes it easier for you to make a decision.

Wishing you the best,
Mariana

 *     *     *     *     *

Hope this letter helps those of you who are in a similar situation.

Wishing you success in all you do.

 

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Conferences and speakers — yawners and winners

Conferences are great for meeting interesting people.
And hearing inspiring, motivating speakers.

But then… there are times when the conference is less than stellar
It doesn’t really live up to its promotional hype.
That was the case with a Las Vegas conference my friend and I went to recently.
The speakers were, for the most part, adequate.

But then, one afternoon we got “lucky.”
The speaker went on and on.
A real “yawner.”
As soon as it was over we bolted out of our seats.
Since we had some time before the next event, we went for a walk.

We stop at a coffee shop.
My friend goes inside to get something strong.
(Preparing for the next speaker?!)
I stay outside.

Betty Jane
As I’m checking my phone messages I hear:
“Well, well! Hello, Betty Jane!”
I’m looking up.
Striking, blue eyes.
He’s smiling. And waiting.

The opening line got my attention.
I’ve never been called that before.

Just then my friend comes out with coffee.
I look at the time — we have less than 10 minutes to get back
We need to start walking (running?)

Regretfully, I smile, turn around, and leave with my friend.
No time to find out who/why “Betty Jane.”
Need to get back to the conference.

What makes a good speaker?
This time the speaker is outstanding.
Speaks to our brains. And hearts.
A winner.

What makes a good speaker?
Start with the 3 C’s: clear, concise, confident.

Clear
Be clear about your message.
What are you trying to convey to your audience?
And why should they care?

Concise
Avoid TMI (too much information).
Because it can confuse or overwhelm the listener.
And that will detract from the effectiveness of your message.

Confident
Know your topic.
And be passionate about it.

Care about your topic.
Care about your audience.
And you’ll have the confidence to deliver your message.

 

*    *    *    *    *

Master these 3 C’s and you are on your way to a great start.

Wishing you success in all you do.

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Financial responsibility

What does it mean to be financially responsible?

It means you don’t make excuses for your financial situation.

You don’t blame others for where you find yourself financially.

You don’t blame your parents. Or your neighbors.

Or your pet.

 

Although I’m really tempted to blame Flipper: she does throw apples slices on the floor.

After taking one bite only.

And the days when she gets peanut butter and banana mix: she’ll take a few bites.

Then she flings the rest on the wall.

What does she think — money grow on trees?!

 

Back to being financially responsible:

Yes, it’s true: some of the things that happen are beyond your control

Still, where you are going from there is totally your responsibility.

You control the path you are taking.

 

Choose to develop good money management skills.

Choose to set a monthly budget and control spending.

And choose to set goals. And start building a secure financial future for you and your family.

That’s what it means to be financially responsible.

(Upcoming money management workshop)

 

More on Flipper’s eating habits: she’s careless when she eats fruits and veggies.

But give her a piece of bread and watch her eating it without losing one small crumb.

And if you want to make friends with Flipper just give her some pizza.

(Actually that works with everyone in this family.)

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