Guest Feature: Miguel Williams
“In this world nothing can be said to be certain, except death and taxes.” -- Benjamin Franklin
Turns out, Ben was right. Even in our new normal world amidst unprecedented times, taxes are still certain. And they still suck. Luckily, we found Miguel Williams of Williams & Associates, a tax preparer extraordinaire who specializes in taxes for live event workers, and he helped answer some of our tax questions. (Thanks KC & KG!) Born and raised in New Orleans, Miguel has always been around the entertainment industry and started his accounting career working under the Live Nation umbrella at the House of Blues New Orleans. He’s been preparing taxes since 2010 while attending Xavier University of Louisiana as an undergrad accounting student, and has worked with numerous individuals and small businesses around the country for more than a decade.
As we entered another tax season, we chatted with Miguel about the types of taxes live events professionals are most likely to encounter. If we didn’t hit on your specific question or if you want Miguel to help you prepare your taxes, feel free to reach out to him directly.
Here’s what we learned:
In the past, I worked full-time for one company and always received a W2. But in 2020, I did some gig work and got several 1099s, what do I do?
As an individual, you are responsible for paying federal and state taxes, especially as an independent contractor. If you’re a full-time employee who receives a W2, your employer withheld the appropriate taxes out of your paycheck. As a gig worker, you are responsible for federal self-employment taxes. Then your income will be taxed on a state level based on your adjusted gross income.
Tell me about self-employment tax.
In general, there is a 15.3% federal tax on your total income. When you are employed by someone else, your employer pays half of that tax (7.65%) and you pay the other half. Without an employer, you are responsible for the full amount. That additional 7.65% that you owe is referred to as a self-employment tax. You will receive a self employment tax deduction for the additional 7.65% on your tax return.
I live in Texas, but I worked in 10 other states, where do I file my taxes?
Whatever state your residency (where you are registered to vote locally) is in, that is where you file your state taxes. Let’s call that your “residency state.” However, if you worked in 10 other states, you may have to pay taxes in each of those states as well. You may get a tax credit from your residency state if it is different from the state(s) you worked in. This only applies to those taxes already paid to the state where you earned your income (all 10 of them). Remember, you will be liable for taxes on all of your income on a federal level (self employment tax) no matter the state.
Let’s walk through an example. If you live in Texas which is one of the nine states that doesn’t have state income tax (AK, FL, NH, NV, SD, TN, WA, WY are the others), but you work in a state that does, such as Louisiana, you are responsible for paying taxes to Louisiana on the income you earned there. Conversely, if you live in Louisiana, which does have state income tax, but you worked a gig in Texas, then the income you made in Texas is still taxable in Louisiana. Also, if you worked in Georgia and paid state taxes for the year, but your residency state is Louisiana, you will receive a credit for those taxes paid to Georgia on your Louisiana state tax return. Clear as mud. Got it?
What are Quarterly taxes and do I need to pay them?
Quarterly taxes are estimated taxes based on income that was made on a quarterly basis. This is important for self employed individuals because it is their share of social security and Medicare taxes. Whether you have to pay them depends on how much income you have. You will get a penalty if you owe more than $1,000 in taxes total for the tax year, so it is recommended that you pay quarterly to avoid the penalty.
For example, if you are a gig worker and make $34,000 or more annually, you will owe at least $1,000 in social security and Medicare taxes, so it behooves you to pay quarterly estimated taxes and avoid any penalties. Capeesh?
Let’s talk about deductions. One of the benefits of being a gig worker is being able to “write off” or deduct expenses related to work. So what can I deduct?
First of all, the government automatically gives you a $12,200 standard deduction as an individual. If you are married and filing jointly, it is double. If you have more than $12,200 in legitimate deductions, you can choose to itemize. Some of the things you can write off to get you past that standard deductions include,
Business expenses not covered by the gigs you work: travel, meals, supplies, and other expenses necessary to do your job
Professional business services such as legal fees and tax preparation fees
Taxes paid to the state can be written off on your federal return
Health insurance and related health expenses
Gambling losses (these must net against gambling winnings)(can’t go below $0)
Any penalties paid for taking money out of a 401k early
The below are common deductions that can be made whether you take the itemized or standard deduction
Student loans interest up to $2,500 (if the loan is federal)
Tuition and fees (if in school)
Is a tax credit the same as a tax deduction?
No, tax credits are different from deductions. Deductions are made to your total income. Credits are applied after your income is already adjusted and can be either refundable or non-refundable. Some examples of tax credits are:
Child tax credit
Additional child tax credit
Earned income credit. (Given to those who make less than $15,000/year, non-refundable)
401k or any type of retirement account credit (Decreases when make over $40,000/year)
I received unemployment, stimulus, grant, or PPP money. Do I pay taxes on any of those?
Any unemployment money you received is taxed according to the state you received it from (think of unemployment the same way as working in that state). Instead of getting a 1099MISC, 1099NEC, or W2 from your employer, you should have gotten a 1099G from the state you have worked in, indicating how much taxes were withheld from your unemployment payments, assuming you elected to withhold them. If you didn’t withhold any taxes, you will have to pay them now. Any additional money that was supplemented by federal or local governments (i.e. $600/week) is also taxed in the same way. The new COVID Stimulus Package that was signed into law on 3.11.21 has revised this. Unemployment payments up to $10,000 will not be taxed for the 2020 tax year.
Stimulus money (i.e. $1,200) is not taxable. If you feel like you should have gotten stimulus money (based on 2019 income), but didn’t, there is a refund recovery tax credit that can be claimed when filing your 2020 taxes.
If you received a grant (i.e. from MusicCares), that money is not taxed. (YAY!)
PPP monies are also not taxed as long as money was used for allowed expenses. For example, if you received $100,000 of PPP money, but only had $50k of real, forgivable expenses, then that is considered a grant and the other $50k is considered a loan. You still don’t owe taxes on the loan portion, but you will have to pay interest on it to the issuing bank.
Can I file my taxes on my own or do I need help from a professional?
Of course you can file your taxes on your own and there are several software options available online, but with all of the complexities and nuances of being a gig worker, you may want to chat with someone like Miguel who knows the live entertainment industry and can help you take advantage of all of the deductions and credits available to you.
Depending on your situation, the savings you get when working with a professional may be much greater than the cost. Reach out to Miguel and find out!