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stacysound

2020 IRS form W4

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The IRS is pumping out a new form W4 and it looks complicated AF for us freelancers who have multiple employers + 1099 income.

 

No more "# of dependents". It looks like it was created with a single employer in mind. Looks like it wants your annual income to judge how much Federal Tax should be withheld.

 

Anyone received any "legal" advice?

 

https://www.irs.gov/newsroom/faqs-on-the-2020-form-w-4?fbclid=IwAR0uFZcsCL2CLo6plR6bHlBJEjZkie-cVYAiVE3LWoyyYTqb3HkYtFJUhQ0

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The FAQ is full of corporate-speak and sounds like it's trying to hide "we want to give you fewer opportunities to take advantage of the actual tax law", IMHO. 

 

I'm not a lawyer or CPA. As far as I can see

 

 

1) The multiple jobs estimator (https://apps.irs.gov/app/tax-withholding-estimator/income-and-withholding) referred to in the new W4's instructions actually has room for freelancers who work on a gig-by-gig basis. And it lets you include the low-paying jobs to reduce the average.

 

2) It might be worthwhile getting an "04" number as a sole proprietorship, and filing a schedule C for your professional earnings. It's free. 

 

2a) That also makes it easier to deduct for your professional expenses and depreciation and things like business mileage on your car. I've been doing that for years, and when a client requires a W4 or has to withhold because of local film tax rebates, I use the 04 number.

 

2b) Some producer bookkeepers have complained that they need an SS number rather than the 04. They're wrong. The old w4 even had a place where you could submit the 04 instead of the SS. 

 

2c) End of year, my accountant computes my tax by taking the Schedule C bottom line as my income on the 1040. Then he uses any withheld money to reduce the tax due on the 1040. 

 

3)  It may even be legal to submit the old form in place of the new one. See 2b, and check with your lawyer or accountant.

 

You definitely need an accountant... probably one familiar with our business. And a big chunk of their fee is deductible on your Schedule C.

 

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To expound Jay's 04 number, that would be an EIN, employer Identification Number. (04 is his neck of the woods, yours would be different)

 

Thats another can of worms, as you would need a business license, and/or incorporate.

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TV Post, I beg to differ:

 

04- is a Federal number, and it applies to all US federal and state taxes. It's now referred to as "Taxpayer Identification Number", since you don't need to have employees or pay salaries. 

 

I've been 04-2836139 since 1988, when I left the big production house I was at. (My accountant suggested I stay as a sole proprietorship -- just me, no corporation or partnership -- because I'd collapsed my own corporation a few years earlier when I sold my multi-room complex. Accountant said if I formed a new corporation in the same line of work, IRS could take away the tax benefits of my earlier move.)

 

When employers ask for my SS number, I give them the 04 instead. It appears on my billhead. It's not a secret, and can't be used for identify theft. Even though it only refers to me. Most of the producers that pay me net without deductions don't even bother with 1099s... they know that since I'm registered as an 04 with the IRS, the government will work to keep me honest.  Productions that do deduct (as required by some state film bureau work) send me a regular W2... but with the 04 number instead of a SS.

 

I file a Schedule C each year, which reports my professional earnings and expenses (including use of home and car, as long as they're reasonable and documented). I pay my own employer's tax on the earnings, just as if I were a corporation paying myself a salary. Then the net profit goes into my 1040 as my income, and I pay federal and state taxes on it the usual way. You can do all this yourself, but I really recommend hiring a CPA (and not a storefront tax company or software, at least for the first few years) because there are a lot of legal things you can take advantage of.

 

License and registration? For my car, yes. As an audio postie, no. I don't bill myself as a civil or electrical engineer, which requires a test and state registration... sound engineers don't, at least around here. Business registration is strictly a local affair. Since I do business under my own name, I don't need any registration here. I don't know of any locality that requires registration for a professional doing business under their own name.

 

Again, IANAL. This isn't legal advice. It's just what's kept me out of trouble for the past ~30 years.

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I stand corrected. Being an East-coaster, all of us here (including my bank and accountant) refer to them as '04-' numbers. I'm sure your EIN is equally valid.

 

But why do you need a business license or corporation to get one?

 

Form SS4 at IRS.gov, which is how you get an EIN assigned, clearly has a checkbox for 'sole proprietorship'; all they ask is a reference SS for the proprietor. And there's nothing on the form about a business license or number number. They just want the tax-related info (address, type of business, product or service, expected number of employees -- which can be zero -- and so on.).

 

Your state or city MIGHT require a license to do business under your own name, but many don't... so the IRS has no reason to require one.

 

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16 hours ago, Jay Rose said:

 

 

But why do you need a business license or corporation to get one?

 

 

 

You don't, but out here, its financially advantageous to become an S Corp.

 

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I agree.
 

The #%£€# attorney who set up my first corporation in the 1970s should have made it sub-S but didn’t. If he had, I wouldn’t have needed to collapse it when I sold the facility and could have paid tax on my profit at personal rates rather than corporate ones. As it was, I had to dissolve to claim it as personal. 
 

 Which meant the subsequent operation HAD to be a proprietorship. 
 

Lessons;

1) I know better now. 
2) I’ll never be rich enough — either as a corporation or individual— to not pay taxes. 

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I just filled out my first one. As an incorporated sound mixer, I avoid W4's like the plague but inevitably I do a few jobs a year that I can't avoid it. You don't have to fill out sections 3 and 4, those are only if you don't want the tax withholding to be based on filing status and income. This is just one more reason to incorporate, but then again with the new California labor law passed 01/01/2020...

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I talked to an IRS representative, my accountant (who is still researching), and finally entertainment partners. Entertainment partners was the most helpful. Here’s what I know. Disclaimer, check with your CPA, your individual tax situation will be different than mine.

 

If step 1 and step 5 are complete, the form is complete. Step(s) 2,3,4 are optional. Amounts entered in Steps 3 and 4 are ANNUALIZED.

 

Here’s a few examples. Federal withholdings only :

 

On a single DAY job with a day rate of $700.

  1. If you only fill out step 1 and step 5, they will take out $100.53. That’s about 14%.
  2. If you ALSO fill out in step 3 “other dependents”, and as an example use 4 dependents entering $2000 on line 3, they would take out $92 in federal tax, about 13%.
  3. Another example is on $4000 a WEEK, as if you were working on a movie. If you only fill out step 1 and step 5, they will take out $618. About 15%.
  4. If you claim 3 dependence entering $2000 on line 3, they would take out $579. About 14 1/2%.

 

I still want to know how to manipulate the W4 so I can have less taken out, but I haven’t figured that out yet. It has to come from the accountant.

 

Remember, your mileage may vary, but know if you fill out Only Step 1 and 5, you will be good.

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