Canavan Financial
Posts from the offices of Canavan Financial Group, intended to help individuals and small business owners understand and take control of their finances so that they can meet their goals. Visit our website at www.canavanfinancial.com
Thursday, February 11, 2016
Tax Season FAQ
Friday, September 11, 2015
Intro to 1099s: Why You Owe So Much Tax
So, you got a new job. Hurray for you! Your new boss said that you're going to be an independent contractor. What does that mean? If you don't understand your situation and plan ahead, that can mean a very large and unexpected tax bill. Below are just a couple of the common questions that are asked of me with regard to independent contractors and 1099s.
"What is an independent contractor and how is that different from all my previous jobs?"
The first time I was hired as an independent contractor (in a previous life, before I was an accountant) I had relatively no idea what that meant. I knew that I filled out a different form to be hired (a W9 instead of a W-4). I knew that my new boss said that they wouldn't be withholding taxes. Then came tax time, and I cried. The end.
When you're classified as an independent contractor, you're technically self-employed. This means that the company that is paying you is not withholding taxes from your pay, and they also aren't matching your taxes. When you're an employee, you pay half of your taxes from your paycheck (usually around 7.5%), and your employer matches that. When you're self employed, the entire tax burden falls on you and you're also subject to self employment tax. The pain from these facts can be mitigated if you plan ahead, but the tax burden is something that should definitely be considered before taking on contract employment; you should remember that a portion of what you're bringing home isn't yours, it's Uncle Sam's.
"How can I be prepared for tax time if I am an independent contractor?"
If you're working in a position that you know taxes are not being withheld from, you need to plan ahead. The first step is to save a portion of your pay for your eventual tax liability. I recommend consulting with a tax professional about your specific situation, since everyone's taxes are different, but a good rule of thumb that I tell people that are self-employed is to save 30-35% of every check. I highly recommend establishing a separate savings account specifically for those funds so that you aren't tempted to spend that money throughout the year. If you're self-employed, chances are you will end up owing the IRS when you get your taxes done, and it is a lot easier to stomach a large tax liability when you already have the money tucked away to cover it.
I know that 30-35% is a lot of your pay. If you're being paid $10/hour, I'm basically telling you that only $6.50 of that is actually available to you. Other accountants might tell you to save less. Here's how I like to think about it; I would rather have you save too much and have money leftover after you pay your taxes, as opposed to recommending you save too little and then you have to come up with even more money to cover your tax liability. I tend to be conservative with my estimates because I like for my clients to be prepared for the worst case scenario.
"This sounds like it sucks. Is there any benefit to being an independent contractor?"
The tax side of being an independent contractor is kind of harsh, I'll be the first to tell you that. Whenever a client hands me a 1099-Misc with a lot of money in Nonemployee Compensation, I wince a little on their behalf. However, there's a silver lining.
When you're self-employed, you can write off far more on your taxes than you can when you're an employee. You can write off mileage, tools, qualified meals, a portion of your cell phone and even a home office if you have one. When you're self employed, you may also be eligible to deduct half of your health insurance premiums. If you travel, there are per-diem deductions that can be factored as a deduction. Keep your receipts for everything you pay that is at all related to your self-employment; many of those items are deductible.
The Bottom Line
If you're going to be paid as a contractor and you know that taxes aren't being withheld from your taxes, it's in your best interest to start working with an accountant as soon as possible. Once the year ends, there is very little that can be done to affect your tax situation retroactively, but if you are working with a tax professional throughout the year to plan ahead, you're more likely to be in the most beneficial position possible when tax time rolls around. I know that many people prefer to do their own taxes, but if you're considered self-employed in the eyes of the IRS, I recommend working with a professional who will know more about every deduction that you are eligible for and will help to ensure that you don't have to hand over more of your pay than you need to for your taxes.
If you have more questions about self-employment, 1099s or how to plan ahead for your taxes, you can contact me directly via kcanavan@canavanfinancial.com or by calling 303.284.1096.
Tuesday, September 1, 2015
This Month's Promotion: $150 Off New Bookkeeping Engagements



Monday, June 29, 2015
Home Budget 102: The Little Things that Save You Big
Tuesday, May 12, 2015
Paperwork - What to Keep and What to Shred
Wednesday, April 29, 2015
Home Budget 101: The Little Things That Cost You Big
There are many different philosophies that people employ when it comes to managing their money. Some people (like myself) prefer to stash every penny away for a rainy day, because we know that someday it's going to rain and we don't want to be caught without a financial umbrella. Others subscribe to the philosophy that we work hard for our money so that we can enjoy it, and that we should spend it when we have it. There's nothing inherently wrong with either of these philosophies, however I believe that it is important to make deliberate choices about how we budget and spend our money in order to ensure that our actions are in alignment with our short and long-term goals.
Regardless of what your financial philosophy is, or what your goals are, below are just a few things that I find people are often spending more money on than they think. If you're trying to change the way you handle your money, you might want to take a look at the following items:
Dining Out
Whether we're talking about a fancy night out on the town, or hitting the dollar menu for lunch, dining out if one of the first places I recommend that people cut their spending. In my experience, almost everyone under-estimates how much money they are spending each month on going out to eat. While you may think it's just $8 here and $15 there, the combined total you spend at restaurants can quickly and easily add up to HUNDREDS of dollars each month.
Budgeting Tip: Take a month to track how many times you pay for food other than at the grocery store, whether it be going out for a sit down meal or pulling through the drive through for a quick bite. Next month, try to cut that number in half. You'll find that you don't feel totally deprived because you're still going out occasionally, but I'd be willing to bet you'll see a difference in your bank account as well.
Late Fees
We've all been there; you're super busy and you forget that you haven't made your credit card payment yet. It happens to the best of us. Problem is, almost everyone that you have an account with will charge you a fee for paying late, and over time those can really stack up. Unlike going out to eat, it's rarely the case that these fees are going to cost you hundreds of dollars a month, but over the course of year they can be quite a bit. Additionally, sometimes paying late can mean more than just a one time fee; paying late on some accounts can cause your interest rates to increase, which will cost you more than you think.
Budgeting Tip: Most accounts have the option for you to setup automatic payments with a credit card of your bank account. If you know that you are going to have the cash available come bill time, setting up automatic payments will save you on fees and take one item off your to-do list every month.
Buying A Lot When You Need A Little
Don't worry, I'm not talking about buying in bulk. I have no problem with the savings that come along with buying 900 rolls of toilet paper. I'm referring to your three disc-at-a-time DVD rental subscription, your unlimited everything cell phone plan, or the 15 magazines you get each month.
If you really do sit down frequently and plow through all three of those movies in one day, keep your rental subscription the way it is. I've got a bad habit of binge watching shows on streaming and letting the discs they've mailed me gather dust, and if that's true of your habits too then you might consider cutting your plan down to one disc at a time. Also, when was the last time you looked at how many cell phone minutes you're actually using, or how much data you're actually pulling down each month? It's entirely possible that you can cut back on that unlimited plan because your needs just aren't that robust.
When we sign up for services like this, often times the company providing the service points out that a higher priced plan offers the "best value" because you get more bang for your buck. Things is, though, what if you don't actually us all the bang? If you're only watching two movies a month on disc, it doesn't matter that paying for 3 at a time is the best value... it's just costing you more than you need to be spending.
Budgeting Tip: Keep track of how much you're actually using the things that you subscribe to each month. Do you actually read those magazines? Are you actually watching those movies? If not, cancel the subscription or cut back to a less expensive plan.
Bars and Nightclubs
Go ahead, call me Captain Buzzkill. I know you want to, because I'm picking on the things that you enjoy. Trust me, I'm used to it. I've already told you that you go out to eat too much, and now I am gunning for your bar tab.
On this one, I am going to be quite direct; if you go to the bar or club more than once a week, you're spending a ton of money there.
Fact of the matter is, most bars charge the same for one beer as a liquor store charges for a six pack of the exact same beverage. I totally understand going out occasionally to see your favorite band or have a karaoke night. On the flip side, if you're going to the bar as just something to do when you're bored, for the love of your wallet, go to the liquor store and invite your friends over instead.
Budgeting Tip: If you just love the social scene of going to the bar, I have two words for you: Happy Hour.
Buying Stuff You Don't Really Need... Or Even Want
If you need new shoes, buy new shoes. If you need new dishes, or a few new scented candles because you went through all of the ones you have and you really enjoy them, go ahead, get them. I'm certainly not suggesting that you deprive yourself or your family from necessities or the occasional luxury.
Have you ever found yourself at a friend's house for a "party" that's actually a sales pitch for over priced makeup or jewelry? You don't really need or want anything, but you feel the pressure of the social situation so you buy a couple of things? Stop it.
What about when you just stopped in to a store to pick up one thing, but the sales clerk points out that if you spend another $25 then you get the free gift with purchase, so you go for it? Stop. It.
Succumbing to social pressures to purchase things that you don't want or need is understandable, but at what cost? Personally, I would rather go on vacation than get that free gift at the cosmetic counter. Most of the time it's not even anything I want anyway.
Budgeting Tip: Remind yourself that it's alright to say "no" when someone offers you a deal. As a former salesperson, I can assure you they are used to it and you're not hurting their feelings.