Every Answer My CPA Gave Me

Photo credit: andrewmjiang, CC BY 2.0.

Q: Do I need a business license to be a freelance writer in Iowa? 

A: No.

Q: Do I need a separate business license/registration to be a freelance writer in Cedar Rapids?

A: Double no.

Q: How much should I be setting aside for taxes? What are the federal, state, and self-employed brackets for 2018? Will I also need to pay city tax?

A: He recommended paying the same amount of estimated taxes in 2018 that I did in 2017, and setting up a meeting in November to see if I needed to pay anything extra to catch up. Also, I don’t need to worry about city tax.

Q: Do we need to have another conversation about how much I should be setting aside for taxes in February, after the details of the new tax plan become clearer?

A: Possibly, especially as it relates to incorporation.

Q: I am a self-published author and my sales are handled by third parties (Amazon, Barnes & Noble) that also collect tax on those sales. I receive what is left over after they take their cut, which is distributed to me as royalties. However, when I lived in Washington I was told to report those royalties as “direct sales.” How should I report those royalties in Iowa?

A: As royalties. (Thank goodness.)

Q: HSA and traditional IRA contributions are pretax but not pre-self-employment tax, right? I should expect to pay self-employment tax on my gross income but I can deduct HSA and traditional IRA contributions before calculating income tax on my net income?

A: Yep.

Q: I want to roll over my 403(b) into a traditional IRA. What are the tax considerations?

A: I shouldn’t have to pay any extra taxes because of that.

Q: In Iowa, are IRA funds protected from creditors? I read that one of the big reasons to keep your 403(b) funds active was that the funds were protected in case of debt/lawsuit/etc., but I also read that some states protect IRA funds as well.

No answer because I forgot to ask this one. 

Q: What about the SEP IRA? I feel a bit foolish because I don’t understand exactly how it works. Can I open one? Do I need to be an LLC first, or can I open it as a sole proprietor? Can I make a $5,500 contribution to a traditional IRA and contribute up to 20 percent of my income to a SEP IRA? (Is that 20 percent from the gross, or the net?) What kind of tax deductions do I get from SEP IRA contributions? Just income tax deductions, or do I also get self-employment tax deductions?

A: He’s going to do some research and get back to me. (I got the feeling SEP IRAs didn’t usually come up in conversation.)

Q: Does my plan to make enough retirement contributions and spend enough on my business to keep my AGI eligible for the health insurance subsidy make sense?

A: He thought it might be better to incorporate and then figure out the health insurance thing. (However, I was able to solve it myself — more on that later today.)

Q: Should I become a LLC this year? Are there tax advantages, thanks to the new tax plan?

A: Maybe, let’s discuss again in a few months.

Q: I’m opening a personal investment account this year. I plan to make small weekly contributions to a low-cost index fund. What tax considerations do I need to be aware of? What happens if I withdraw money from that account?

I skipped this one because because the conversation was focused on my business.

Q: I moved to Iowa on November 30. I’ll need to pay Iowa income taxes for one month of 2017, right?

A: Yes.

Q: What are your tax preparation rates?

A: $400–$450.

Q: What kind of records do you like to see when it’s time to put my 2017 taxes together? I keep everything on Mint and can give you an itemized list of business expenses along with my income, estimated tax payments, etc.

A: He’s pretty sure I’ll provide more than enough well-kept records. I seem like that kind of person.

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