How To Prepare For An Audit as a Freelancer

How To Prepare For An Audit as a FreelancerOkay, this is probably a post that isn’t exciting or fun. I’ve never met someone who thought tax returns were a fun subject (except for my tax professor I describe below), and I definitely have never met anyone who wanted to be audited.

Even if you’re doing everything correct, an audit is still not a fun thing.

I took a few tax classes with the same professor in college and my professor was actually a tax auditor. He often shared his audit stories and they were something that would put fear in any normal person.

According to Turbotax, around 1% of tax filers get audited. That’s not very much, but there are little things you might be doing that are increasing your individual chances of getting audited.

Some of these reasons include failing to report all of your income, deducting business expenses that aren’t actually business expenses, and earning more than $200,000.

Also, according to NOLO, once you go over earning more than $200,000 the chance increases quickly to 2.66% and those making over $10,000,000 have a 29.93% chance of being audited. That’s a much bigger chance! Of course, the chance of you making over $10,000,000 and reading this blog is probably fairly slim, but I just wanted to throw that out there 🙂

How will you find out if you’ve been audited?

You will find out if you’ve been audited usually by receiving a letter from the IRS. This letter will tell you mostly everything you need to know about your audit. Make sure you take plenty of time to read this letter from the IRS and that you fully understand each word.

Get help.

For most people, you will need help when it comes to your audit. If you don’t know what you are doing or you don’t understand the letter you received from the IRS, then you will definitely want to seek help from a tax professional.

They can help represent you because they most likely understand tax law better than you do.

Organize your papers.

For most people, their biggest fear of being audited is having to collect all of the needed papers because they are not well-organized. Once you receive your audit letter, you need to start gathering every paper related to your business that you have. You should try to organize them in the best possible way and make sure everything that you have matches what you stated in your tax return.

You will want to find any receipts, invoices, bank statements, and other paperwork that the auditor has requested from you.

Attend the meeting with a smile.

Here it comes, the audit meeting!

You will have to find a time that works for you, your tax professional, and the auditor.  You want to be nice and respect this person. Too many people go into their audit meeting yelling and angry, and that is just not the way to do it. You should be professional and have at least somewhat of a smile on your face.

However, it is also worthwhile to note that this is a professional meeting. You probably do not want to be cracking jokes and sharing gossip with the auditor. You should only share information that they are asking for, and nothing else because that could lead to other time-consuming investigations.

Have you ever been audited? What happened?

 

Image via Flickr by Joe Hall

Steps To Qualify For a Mortgage When Self-Employed

7134101805_f32bb89296_zI’m the type of person who likes to plan things way in advance. So, it only makes sense that I am currently thinking about our mortgage for our next home.

As a refresher, we are thinking about buying our next home within the next two years. We don’t think we want to stay in St. Louis, and we are looking at moving possibly to Colorado or Florida. Yes, yes, I know these two states are completely different, but they both have some great advantages of living there.

Getting approved for a mortgage these days is a little bit harder in the past. I remember when we bought our first home, the process was a breeze. Our loan officer even told us that we were the easiest loan he’s ever done.. I have been told that I will not be that lucky this time around because rules are more strict and because we are now self-employed.

You will want a good credit score.

A good credit score is needed whether you are self-employed or not these days, but you will need something a little better if you are self-employed. You will most likely want a credit score above 740 in order to qualify for a loan from your bank.

We are wanting to have our credit score be as near perfect as we possibly can get it. Currently, we are both in the 760 range. It would be higher but we’ve been travel hacking, which has slightly lowered our credit score.

You will want a large down payment.

For the home we live in right now, we paid a very small down payment towards it. Because of it, we also pay PMI, and that’s something we don’t want to do again.

Also, most mortgage companies will want a self-employed person to put down more than 20% on a home because they want to know you are invested in it.

I have heard of some banks asking for between 25% to 30% as the down payment. That is a lot of money that we will need to save before we even start looking for a home!

Lower debt to income ratio.

If you are buying a home, then you will need to work on your debt to income ratio, especially if you are self-employed.

Your loan officer will most likely want to see something below 40% so that you are not overwhelmed with a loan. We will be much lower than that thankfully, so this is not an area we need to worry about.

You will want an increased income.

Most self-employed people deduct routine business expenses from their taxes in order to decrease the amount they owe in taxes. However, this may count against you when applying for a mortgage because your loan officer is going to look at your bottom line to determine how much of a home loan you can afford.

The bank will usually average your last two years. However, if you made less money in the most recent year than the year before, they might only take that number.

Work history.

If you are self-employed person, most banks will ask that you have at least two years of self-employment experience. If you have less, then they may turn you away completely or give you a higher interest rate.

How was the mortgage process the last time you bought a home? Did anything go wrong?

If you are self-employed, please, especially, share your experience! 

 

Image via Flickr by Billy Metcalf Photography

5 Tips To Manage Your Side Hustle

5 Tips To Manage Your Side HustleJust one year ago, I had several side hustles. I was working 100 hours a week. 50 hours each week were spent at my day job and 50 hours each week were spent on my side hustles.

I continued this for a few years, and my side hustles are now my full-time freelancing income. I was constantly asked how I was able to manage it all, and for as long as I did.

Well, I am here today to help all of you manage your side hustles along with your day job. My five tips are below.

1. How determined are you?

It is possible to work both a day job and a side hustle. It just depends on how determined you are. If you really have a good reason to have a side hustle, then you will find a way to make it work if it is meaningful to you.

This is important because managing a side hustle and a day job can be a lot of work. If you are not determined to manage both, then I personally think it would be very difficult to manage it all both mentally and physically.

2. Carefully schedule your time.

Managing both a side hustle and a day job means that you will have to schedule your time as carefully as you can. Every minute and every hour counts, so you will want to be careful with your time.

For me, I scheduled my side job into any time slot I could find. I would wake up early in the morning and I would freelance for around an hour. I would then go to work and use my lunch hour for my side hustle as well. Then, I would come home and side hustle some more. I had a strict schedule and if I didn’t stick to it then where I am right now probably wouldn’t have been possible.

3. Use time off strategically.

I also used my time off strategically. I would take vacation days off so I could work on my side hustles. I also used holidays and weekends to work on my side hustle as well. For a few years I didn’t have an “off day” where I wasn’t working at least a little bit.

Every little bit counted if it meant I could grow my business!

4. Automate as much as you can.

One thing I have done that has really helped me out is automating as much work as I can. I write several articles each week, and I always try to write as much as I can ahead of time and then I schedule them to go live later.

The same goes for tweets and statuses on social media networks. It saves me a ton of time just in case I can’t get to it later.

5. Still find time to enjoy life.

Even though it can be hard to manage a side hustle and a day job, it is possible. You also still need to find time to enjoy life, no matter how hard it may be. I didn’t have a ton of free time when I was working 100 hours a week, but I still made sure to see my friends at least once or twice a week.

Even just a quick lunch can be fun and relaxing.

Do you have a side hustle? How do you manage it all?