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Taxes: Don't be Afraid

Lesson 14 from: Personal Finance for Artists & Freelancers

Galia Gichon

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Lesson Info

14. Taxes: Don't be Afraid

Lesson Info

Taxes: Don't be Afraid

I'm on fire, I'm feeling so good, I'm loving, teaching this class and I have to say it's really? Based on the reception that I'm getting from the chat room and from this amazing studio audience and literally on my way to get a quick drink of water at the break and people are pulling me aside saying, I've got a question, I've got a question, so I'm just really loving the responses thank you, because I get sit up there and just talked to an empty box, and obviously, the response I'm getting from you makes a huge difference to me as well. So we're going to talk about taxes. We're going to talk about retirement plans, but before we do that, I just wantto talk a little bit about dollar cost averaging and as we get more into the course, we're getting into some more complex subjects, and so this is a little bit this is probably the first one, so if you don't understand it, bring on the question, I don't expect you all to understand it, like if I were to become a photographer or if I were to b...

ecome a graphic designer, which a lot of my clients are, would I understand everything they do from the gecko? Slowly not so ask the question. So dollar cost averaging the reason I put this in here is this is directly related to your automatic savings so the idea with dollar cost averaging is you are saving a certain dollar amount a fixed dollar amount every month but you're going to be investing it in the market whether it's the stock market through mutual fund don't stress don't worry I promise you I will teach you that tomorrow so you've got to stay tuned and come in for that but it's the concept of automatic savings which is why I'm introducing it here so for example, you invest one hundred dollars into a mutual fund every month so why this is different than putting one hundred dollars into your savings account is because what you are buying is going to change every month because you are buying something based on the stock market and the stock market goes up and down again if you're freaking out because you're not used to this or this is not a concept you're familiar with we will cover it but just understand the concept that you are going to be investing a set dollar amount that one hundred dollars every month but it's going to buy something different because it's going to be advising that's moving what you want to keep in mind this is not your rainy day fund this is not your emergency oh my god am I getting paid? This is for most of us our retirement money or this is our five to seven year money so this is the money that we can take a little more risk with or just take a little bit more with but it's the concept that again do I have that hundred dollars you bet I do and I'll find it and so let me start investing it so dollar cost averaging means that you're investing that fixed dollar amount but it changes because sometimes the market's up so you're buying when the market's up which means you're not getting us much or you're buying when the market is low which means you're getting a lot more for your money now why do you want to do this? I think I'm pretty smart I think I'm pretty well informed I've worked for a long time I've got graduate degrees do I know what the market's going to do tomorrow no if I did people ask me that they're like oh what's the market going to do and like I knew that I'd probably be sitting on my own private island in the caribbean would e I don't know what the market's going to dio I read that I read the new york times this morning I looked at the wall street journal I do look at economic indicators I have an idea what interest rates are I have no idea I can protect myself and we talk a lot about that but I could also continue to buy in the market every month, so I don't have to plan on buying when the markets lower buying when the market's high and so that's the advantage of dollar cost averaging. So what I want you to focus on is how do I find that hundred dollars? So in this example, just realized this is, um and this examine this first example, this is what I call a fluctuating market, so that means that the share price the first month is one hundred dollars, so I got ten, shares the next month, the share price moved down two five dollars, so I got twenty, shares because the share price was lower, so I got to buy more stoneleigh spend two hundred dollars the third month it went back up, so the idea is that I spent three hundred dollars, I owned forty, shares of a stock or mutual fund, and my average cost was seven fifty, so it wasn't the ten dollars or the five it was seven fifty, so this is a market going up and down. This is what I call a rising market, so this is a good market in the sense of the market keeps going up enough, I bought it, it was twenty dollars, and then I moved up to twenty five and it moves up to fifty so my average cost so your thinking at the end it's fifty dollars a share, but my average cost is only twenty seven dollars because I kept buying it every month, and then this is a market words going down, which means that my average cost is fifteen dollars a share, not the ten dollars or not the twenty five do we know if it's a good market? Do we know if it's a bad market? Do we know if it's fluctuating? No, absolutely not, but if we're continuing to buy, we can really take advantage of ups and downs. So what I want you to think about is when I start investing my money because you're doing the rainy day we found that money take it a step further and thinking about investing your money every month and ira's, you're going to start to take advantage of dollar cost averaging, and it is just an absolute fundamental principle of investing. So when I got my finance degree in college and then I got an mba in finance, we learned about dollar cost averaging so here's a principle that I learned in graduate school that you can apply to yourself as a freelancer and you can get this, you can understand it if you don't ask me the question, I'll explain it to you again. So think about your automatic savings and how can I start investing every month to take advantage of when the market goes up and down so over the break in addition to opening the online savings account think about dollar cost averaging and how can I start investing my retirement money every month which we'll talk about in a few minutes? Let's start with taxes don't be afraid there's a lot of fear around taxes because on the whole you're setting up the mindset of what if I do something wrong that I'm in trouble the government's going to come get me right true confessions I've been audited it was not fun but nothing that happened first I'm doing everything that I should be there was a pain I I won't lie to you I took some of my summer vacation a little bit of blood flesh too, but I knew that I hadn't done anything wrong I followed the rules, I did what I was supposed to dio I had my receipts, I had my bookkeeping. Plus the worst case scenario is if I took a deduction that I wasn't supposed to, I would have had to pay back taxes that would have hurt but I didn't do anything wrong really what's wrong is shielding income and that's not what we're talking about here we're talking about just trying to be clear on the taxes you owe and taking the deductions and setting up those systems in place so just becomes another thing you do it's not another thing we fear and the reason this is so important, I mean, I purposely did not become an accountant, I did not become a cbs because I didn't want to deal with taxes, but working with people's budgets and personal financial information taxes is such an issue number one, they just they don't have it taken out, and they also I see a lot of people get into trouble in terms of the taxes they end up going and, you know, why set yourself up. So if you're just starting out, this is the time to set the system in place. If you're not make sure that you're doing everything you can about taxes, big picture, and you saw that I already started to do this, take a percentage out of every dollar received and put aside for taxes. So someone in the chat room and said earlier, well, you know, I don't think your numbers should be twenty percent of should be thirty percent, you're right, I don't know your number. I know my number, my numbers about twenty eight percent, so I know that every time I get paid a dollar, I take twenty eight percent cut into my savings account and that's based on my husband and I, together with our different investments or corporate freelance like we do not have a simple situation, but I have a good c p a who said here's your number take it out get to know your number so I am assuming twenty percent because again the incomes I was was given where were pretty low I have a client who probably makes gross one hundred hundred fifty thousand, she writes off so much legally has a great accountant probably has about twelve percent in taxes, she's not doing anything wrong, she just writes she's able to duct adopt a lot of her business but that's the mindset and and so much of what we're talking about today is really changing your money mindset and I'm giving you the practical applications and how to do that. So the idea is that your mindset is you get a dollar portion goes towards taxes find out what that number is if you don't know and just take twenty percent if you're not earning a lot yet if you're arning and then actually it's a good point kind of mine who did who was a good earner and I had her put forty percent away into a tax account what's the worst case scenario she doesn't owe forty percent and she saved that money and she never does owe forty percent but she does she probably earns two hundred fifty thousand year great earner put it away she never has teo pay that much but at least it's four savings so what she does which actually is a good seg way is she takes forty percent she calls it her sep ira and tax account so it's her one savings account and so whatever she doesn't put towards taxes she puts towards her sep ira so if you're a little bit of a hiring or maybe that's something that you could do and they go hand in hand when I'm talking to the sep ira so this also has come up with a man I hear from a lot of my clients they say well, my accountant says when we talk about the sep ira they say, well, if I pay sixteen thousand dollars in taxes and put five thousand myself ira or I can put ten thousand myself ira and only paid twelve thousand taxes it's so putting that money away on a pre tax basis is really important, especially if you're starting to earn some good money jumping ahead of myself there point is they go hand in hand and start taking the dollars out quarterly estimated taxes don't wait for once a year it's stressful you're always going under pay always gonna owe money you're going to pay panel to use again you're the cfo now of your business you were the ceo, the ceo you're the cfo, your chief financial officer paid quarterly find out your tax bracket start with ten to twenty percent get a fantastic c p a whenever you get paid take that amount out and put it into a separate savings account as we talked about so if you're going to create that online savings account create one for taxes changing your money mindset taxes or not your money anymore they're not that sucks but that's it what can you write off? So I'm just going to give a disclaimer I got this from a great I love this website wise bread does anybody know it? I think it's could be wrong jd roth is thie no he's slow money anyway there's so many great personal finance lights but it's a great sight so I actually got this from one hundred one tax deductions for bloggers and freelancers it's at the bottom there widespread um he had a lot on there that I didn't put but I thought these were great that you could put but here's the first one check with your c p a I'm not a cpm not an accountant if someone tells you they're an account there not that's the on ly person who really can tell you this qualifies for your business you can use an online tool like turbotax I'm a big fan of turbotax so if your finances air fairly simple you can definitely use turbotax but this is where you got to get smell around it pay for it it's worth it um so someone had just asked me actually just in the break now I wanted him to come on camera but he wouldn't he said I buy a lot of equipment for my business but it's used can I deduct that I'm like absolutely he's like but I don't have a receipt and I said, why can't you get a receipt? Why can't you just even get a sheet of paper number one I said you pay with a credit card he's like yes and like great create a new business credit card and buy it with a credit card so now you've got your credit card statement is receipt but then on a big picture basis why do you need a receipt so you need the receipt a just for record keeping purposes so when you do your taxes and your do your bookkeeping you know exactly what you spent and where but guess what if you have it on one credit card think of how easy that is just to give up to your book he bird to doubt entry that yourself one credit card one bank statement number one number two if you do get audited you're gonna have to prove that you paid money and bought something so you do need to receive for that the likelihood of you getting audited is slim but people get audited all the time I've been audited, I've had clients audit, it happens. You haven't done anything wrong. So you need the receipt for record keeping purposes and in case you get audited. But can you do with used equipment? Yeah, absolutely. Why not? Anything by the used equipment? Don't pay full price? What can you write off unpaid invoices? This's a big thing. So as you know, I'm a big fan of the freelancers union, and I know they tweeted about this course yesterday and last week and huge organization in new york and across the country and there there dot profit there advocacy they provide health insurance again? I'm not paid by them just a big fan of theirs. Sarah horowitz was the founder is a visionary, just really amusing woman hello, sarah, if you're watching, um but what they've done is they've started this whole petition because so many freelancers don't get paid and they're sort of, you know, they don't have rights, they don't have a big organization behind them, so they've started this whole advocates advocacy group. Teo, get your invoices either written off or get paid or just a really amazing movement. So if your freelancer you're relating because you know that you have an info eyes like I have a few invoices that I do not get paid not a lot but you know you're not going to sue them you're not going to take him to small claims court I mean you could but net net you probably won't make anything from it point is you could write it off business meetings coffee shop yeah, absolutely not saying go to the fancies coffee shop but if you go to starbucks or if you go to the coffee shop absolutely you're job hunting or just any expenses relating to looking for work um research related to your job home office expenses I almost didn't put that on there because while you can write off a lot working at home, it is a big red flag for audit and you have to be really clear about can you write again? I'm not the actor but can you truly right off your whole home in your whole apartment? No, not at all so the mindset of like, well I work at home so can I just write off everything? No, in fact, when I lived in new york, I um what were the diesels around it? So we had a bedroom that we sort of use that we didn't use was like an extra bedroom, but new york space is scarce and when my second daughter is born, we kind of used it we didn't my count was like you know what? I'm going to write off ten percent of your mortgage for the home office I was like, well, I work from home oh she's like I know but you know the bedroom is kind of being used is kind of not so it's a little hair it was our laundry room too but that's new york pay pal fuse your cellphone and skype if you get professional advice to my clients always ask me they say can I write you often like go for it because we're even though it's personal finance we're always talking business stuff charitable contributions so percentage of medical expenses unfortunately if it's just your regular medical expenses such as prescriptions and such you cannot write that off has to be above like five percent or seven percent of your adjusted gross income but if you're spending a lot like if you're having a baby and you're paying for things out of pocket if you're doing have a lot of clients who use alternative care like acupuncture and massage therapy and things like that that they had a pocket and if it's for medical expense absolutely um subcontracting fees so education related to job this course you could probably write off this course if you buy it because I guarantee you you're learning stuff about your business here there look I just found you somebody books related to yeo um again go to the website you buy the course you'll have these is your is your tool but having a good accountant you know, someone had asked yesterday of well, how do I know if there's mistakes on my credit port or how do I know if I got a good accountant asked the question it's like it's like your relationship it's like love and money just ask the questions there am I writing off everything I can and accountants are people and some are conservative and somewhere really aggressive man I've seen one who just writes off everything any shows up in his hawaiian t shirt and great you know it's it's it's about relationships, so be sure what you can write off same note separate your business and your personal I just I cannot say this enough take yourself seriously I did a seminar with this wonderful marketing coach and she really I mean I that's where I got this from her she's like you're the ceo, you're the cfo don't you want your clients to take you seriously and hire you and pay you big bucks? So why aren't you taking yourself seriously separate checking separate credit cards, separate receipts come up with a system come over the form and I and I get it I know it's the last thing you feel like setting up a system at home coming up with a different file cabinet coming up with something just take the time that you're investing in yourself to do it like you're showing up for this course, right? Aren't you investing in this course? So take that time. Incorporate there's again. I'm not a lawyer. There's a great, great website for legal issues called no lo and ol oh, dot com um, I think it's it's latin it stands for no low. I'm not gonna even try to pronounce it, but it's a latin word for legal so that's a big question is a freelancer. Should you be an llc? Should you be an escort? Should you do d b a? Should you fill in the blank? Do others? I don't know. I don't know what you two do, but my accountant told me what to do. So I ended up doing in l c because my husband works for a corporation. I work for myself, so we're a little bit complicated. We also have some investments and we wanted to file one tax return. We didn't want to do a separate escort tax return. I knew that if I was gonna have employees, which I do, I've got to employees, but I pay them to ninety nines, so the s so the llc work the best for us, so I've been a jealousy for eleven years. And it cost me I think uh two thousand dollars to incorporates with a little bit more than becoming an s corp and that was a decision that we made so I took myself seriously guess how much revenue I had when I did this zero but I was like right off the bat let me set myself up question while you're on that topic if you're a freelancer are you a business? So no matter what kind of business you know how you choose to sort of define it but are you a business that's a really, really great question it's I don't know if I want to get into this so much but it's a choir you becoming a freelancer? Are you doing this just because you're in between corporate job and you're trying to get yourself to the next job so maybe you're not a business you know, maybe this is just like for the next year six months until you become one or you're doing this because you want to live your life is a freelancer and you really want to take herself and livermore independent balance life and yes, your business absolutely so maybe you just do it d be a like I know in new york city you could do it d be a does business as you stopped to register but the cost of really low I don't think you get a lot of the legal protection but that's something you can do so I guess the question is why are you a freelancer is this just to get you by until the next thing you know you're probably not a business but your freelancer because you're like no I'm I'm liking this life like for me I know that I like working for myself I did ten years working for a company I loved it but I knew I wanted to work for myself so that's your mindset heck yeah your business pay yourself a salary shiites I'd show this a little bit before from that question so money comes in maybe your salary's a hundred dollars a month but guess what? That's gonna feel really good knowing that you're paying yourself so especially if you're up and running for a year two and you've got some income coming in like these people who all gave us their incomes they knew there are getting twenty, seven hundred a month thirty six a month forty you know these air numbers that you can start saying okay with what's left over I've got this much that I can start paying myself a salary takeoff, the business expenses and then with extra money left over then I actually can put that money into my account so over the break find out your tax bracket percentage open a separate savings account just for taxes that I didn't put on here but set up your systems all right so we're going to move on to the question we have quite a few tax question some text question I'll try I'll try I'll be quick to say pretty general we're sticking to the general ones that you know a story of films can you write off moving costs and travelling costs related to job hunting um you know really again dissipation have the final word but I would say yes yeah thank related I've always heard if it's related directly to the job absolutely and clay wanda's do you also have to deduct a percentage for social security in addition to federal on state texas yeah absolutely but again like I don't know how much I do that account tells me you know absolutely I can barely pay for social security and self employment absolutely it's here it's not going to retire on but lisa berman design wants to know if you receive a gift of money from a family member do you have to pay taxes on that like probably not it's considered a gift so it's not but you'd have to claim it absolutely and it's I think fourteen thousand dollars a year is the most you can receive from a family member so if you receive more from that from that family member than it's considered taxable income but yeah you've deal to claim it gen m wonders will you be outlining the different business structures we can set up as freelance s and covering collecting state sales tax yeah, I mean, truthfully no, those are great cipher really talking about the escort the thing l l c d b a and this is a pretty interesting one for a story of films in a story films you've been awesome online things you've been saying this story's budgets are history and I know she lives in boston in two thousand thirteen I worked in texas for eight months, which has no state tax in massachusetts for the rest of the year which does have state state state tax how do I make sure I'm not paying any state text on the income I learned in texas? How'd you manage that? Yeah, I mean, you have to tell you because I've had that when I moved from new york city to connecticut and the state taxes really deferred they went down so again mike did it by what we did is we prorated it? So if she's in massachusetts for forty percent, then she should only pay state taxes on forty percent of their income she could also just say, you know, unfortunately, I think they just look at income overall and I don't think they're going to look at income like, you know, but maybe like the last half of the year the forty percent but really the accountant or turbotax should be able to do that as well yeah, there was actually a comment on you and he are actually from washington state says that she heard the turbo tax isn't really designed for creatives had to be sure you get the best deductions possible and wondered if you could comment you know, I I I think it's your first step, I think that if you're situation is fairly simple and you don't have a lot to write off and you're in a fairly initial state, it can be good enough, but I agree if you're feeling really creative and you're feeling like your life is becoming more complicated than now, it's probably not your answer, you know, I'll just say this out there, I'm not a fan of these like text service companies, no names mentioned that you know, it's just kind of like a national corporation where you just go and have someone random do your taxes. I don't it's not that I'm not a fan, I've seen mistakes, I've seen a lot of mistakes over and over, so you think you're getting something for one hundred fifty dollars if you're situations that much complicated, you probably need to work with an accountant that you pay for five hundred dollars for we have one more from that we just have a quick have a business in the state of washington and that's definitely something that you want to consult with someone on because I worked with a strategic bookkeeping company, and they told me about something called vienot, which is a business and operation tax in that state, something that I didn't even know about before. So you're exactly right about consulting someone that knows, because if you make that mistake, right, yeah, right? And by the way, the tax laws changed every year, even though I have practically a degree in accounting, literally, it was an accounting major in, like, three classes short of an accounting degree, and I didn't get it. I switched to finance. I do not know what accounting this is. This is more abroad abroad. One again from pat, I brought a second house to renovate and eventually sell. Is it possible use that houses my office for my internet business? Could I didn't make deductions related to that? I don't know checking on, yeah, that is turkey. I mean, you probably could make some, but again, you know, if you do too many, you're gonna be a flag for an audit. So you just want to make sure that the cp is telling you what you can and can't do if you're truly living in the house and using the houses in office, and probably can, but get some advice around a paid vice. Any other questions? I don't text that that's a lot of attacks, the very specific and at that point that you do need to say p a and the fbi field manual starts lewis relevance, you're really the point is you've got to do something, and these are some things that you can do. I mean, what I will say is I make because again, I'm a zoo I mentioned before, and you'll see that I only get cheaper and cheaper when it comes to investing in professional fees and things like that. So mikey pay loves me because I give her I literally email her a one page quicken sheet. So I do I, you know, sometimes use a bookkeeper since my my am business expenses are fairly simple, and so I do everything on quicken and ijust invoice separately like that. And so I essentially input everything into quick in either download or just at entry it it takes me like an hour to a month, and then I send my accountant a profit and loss statement and quicken literally. So pdf that I'ii email her, and then she e mails me back and says, here's, your tax bracket here's, what you owe and she fills out the estimated taxes. So if you want to save money, you could get up to speed a little bit and put together your income in your expenses. Do it in a spreadsheet. I didn't excel spreadsheet for years before I moved to quicken, but get a system, whether it's, quicken, whether six l, whether it's, fresh books, whether it's, quickbooks, like, get something in place and I'm a solar preneurs. I mean, I've got a few people who work for me, but their w two employees. There are ten, ninety nine employees, and exactly that's. Another thing is that I have to set them up with a w two, and I've got it create ten, ninety nines for them. I don't do that. My accountant does that.

Class Materials

bonus material with purchase

Day 1 Presentation
Day 2 Presentation
Day 3 Presentation
Monthly Spending Plan Worksheet
Weekly Spending Plan
Budget Worksheet
Emotional Side of Money Checklist
Mutual Fund Checklist
Personal Finance Checklist
Retirement Planning worksheet

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Kieu Truong

I love how approachable and welcoming and easy to understand this course has make financial terms and situation sounds. I love Galia and she makes I really feel calm and comfortable learning from her. Great!

Danielle Allen

This class was an eye-opener for me. I love the way Galia makes you feel comfortable thinking about as well as talking about your financial picture. I also appreciated her many examples and actionable steps for planning.

Shannon Borg

Galia is AWESOME! I love how down-to-earth she is (hence the name of her business!). I learned so much, and am going into a new year with a totally different outlook on my money. Now I have a plan, goals and much less anxiety about the whole process! Thank you, Galia!

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