Finances Archives - meet john gray

1099 Tax Form It’s tax day everyone. This is the time of year when I’m normally dreaming about how to best enjoy my refund. Not this year. This year I am writing checks instead of receiving them. Nearly $1000 just disappeared from my bank account. Why? Independent contractor income.

In 2014, I spent a little under a month total working as a bicycle tour guide. This has been about average for me over the past few years. I work these tour as an independent contractor. As such, the checks I receive from the company have no taxes or social security contributions taken out of them. At the end of the year, instead of a W–2, I receive a 1099-Misc Income form listing my compensation for this work. It is my responsibility to pay what would have been automatically deducted from this income had I been an “employee” of the company.

I recently learned that the tax rate for 1099-Misc income is 25%! This rate is 10% higher than the tax bracket that my total household income falls under. In other words, the work I do as a bike guide gets taxed as if I make a far greater annual salary than I do. Ouch.

Most years this has not been a problem. I think that’s just been luck. I’m guessing the payroll deductions from my other income made up for the difference and still left enough overpayment to receive a refund. That was clearly not the case this year.

As I set out on a new adventure in 2015, I will be working a lot more as an independent contractor. I’m not going to leave it up to luck this year and hope that there’s not a big bill coming due again next April 15th.

Here’s what I’m going to do:

Keep an envelope and mileage log in my car and track every mile and meal I buy traveling to and from my work assignments. These items can be classified as business expenses and in 2014 reduced my 1099-Misc taxable income by $790.
Continue to deposit my paychecks into a high yield savings account
Take 25% of each of these paychecks and put them into a separate high yield account called Taxes
In six months, assess how much money I’ve made as an independent contractor in 2015 and how much I think I’ll make over the course of the rest of the year.
Based on this assessment, decide if I need to pay estimated earnings taxes out of my Taxes account.
In April, use the money in my Taxes savings account (which has been making a little extra money for me in the mean time) to pay the taxes I will owe.

Though this has not been a pleasant experience, I have learned my lesson and will be more diligent about my tax responsibilities as an independent contractor from here on out. The freedom of picking up work that I want to do when I want to do it is worth the cost of having to do a little more financial management.

Do any of you have experience dealing with 1099-Misc income?

Any tips you would like to share about how to manage taxes?

My partner Justinn here at The Dirtbag Way is also not enjoying tax season, but for an entirely different reason. Read her post to learn more.

Tax Season Lessons: The Affordable Care Act

Last week, Justinn wrote about Piecing It Together and how she juggled multiple jobs to give her the income and, more importantly, the freedom she wanted in 2014. Today, I’d like to tell you about how I’ve managed to piece it together over the course of close to 20 years now. I have not yet mastered this art, but it has been a practice well worth undertaking, allowing me to do meaningful work while having some great adventures along the way. </p

I began my dirtbag journey in 1996. Since then, I have only worked as a salaried employee around 5 years total. It has not always been easy, but maintaining a level of freedom in my life by being able to piece together income sources has allowed me many opportunities I might not otherwise have had. Through a combination of taking on contract-based, salaried, and part-time work, I’ve been able to:

Live 5+ years without paying any rent
Live and work in the Bahamas
Buy and sell a house
Spend time living and working on the coast and in the mountains
Take extended trips in Costa Rica, New Zealand, and around the United States
Earn a degree in internet technologies
Put money into a retirement fund

For me piecing it together over the long haul has meant coming in and out of periods of relative stability in my work and living arrangements. It has meant working more if there was some objective that required a greater financial input or when I wanted a more settled sense of home and community; then backing off and taking breaks from full-time work when the desire for freedom and adventure inevitably became too irresistible to pass up. Some of the things I have done over the years to piece it together include the following:

Teaching at an environmental education center
Working for Outward Bound (both contractually and in salaried positions)
Leading bicycle tours
Working with a local outdoor education program
Construction (don’t hire me, I have no skills here)
Restaurant work
Programming and graphic design work (both freelance and in a salaried position)
Freelance writing (hire me, I’d love to do more)

There are several factors that have enabled me to create and maintain this lifestyle of mixing and matching work over the course of so many years now. They include:

Choosing work that provides variety
Learning new skills
Being receptive to opportunities
Taking breaks after periods of intense work and focus
Being okay with uncertainty

I have implemented choosing work that provides variety in two different ways: variety working within organizations or skill sets and variety derived by working with a multitude of different groups or specializations. Both are important. Though much of my work has focused on outdoor education and recreation, I have been conscious of creating variety within my career. At Outward Bound, I have enjoyed being in a number of different roles and working environments. Switching between these and trying to add new ones keeps the experience of working there fresh and engaging.

Though I love sleeping under the stars with my Outward Bound students, the variety I get from staying at luxury bed and breakfasts with my guests while leading bicycle tours makes for a nice counterbalance, while still allowing me to work in an active outdoor environment. Throw in some time spent writing and programming, and I have a nice mix of socially engaged, physically active work and work that is more cerebral and quiet. Variety prevents boredom, the reason so many people grow to dislike their work life.

To create more variety in the work that is available to me, I’ve found it important to learn new skills. I have pursued this strategy both formally and informally. I got a community college degree in a field that interested me and found that the time and financial commitment required were reasonable compared to that of university degrees. Other ways to increase skills include becoming an apprentice with a craftsperson or artist or just learning things online. If you are looking to acquire some new skills, I would focus on ones that are in demand and can be easily done on a part-time basis, but be sure it is something you are truly interested in so that you will enjoy the work.

Being receptive to opportunities means that I always have my ear to the ground listening for income earning possibilities that might fit the lifestyle I am trying to create. I keep my eye on job boards that specialize in my areas of interest and check Craig’s List and the local free paper. Having more skills in my toolset has multiplied the number of opportunities I have the ability to pursue, but even if I feel unqualified for a position, I don’t let that stop me from applying anyway. Going through the process of applying and interviewing for jobs is in and of itself a great teacher and at times has lead to other opportunities.

Taking breaks is an important part of making this lifestyle work for me. In the short term, I’ve seen many people enter the world of outdoor education and go gung-ho into it, accepting every contract offered them and spending 200+ nights or more out in the field. While some people might be able to sustain this, far too often I’ve seen talented, passionate individuals come to Outward Bound in a blaze of glory, only to fizzle out exhausted after only a few seasons. I believe taking breaks after and between periods of intense work is essential to longevity in any career.

Being okay with uncertainty is perhaps the most essential skill I have had to practice in order to pursue a lifestyle I find personally fulfilling. There are sacrifices when trying to piece together a living vs. settling into a stable job situation. I don’t always have a physical home to come back to and I sometimes don’t know when I will be getting my next paycheck. To live this lifestyle, you have to be okay with situations like this, in fact you must embrace them as a part of the adventure of choosing this way of being.

These are some tips and techniques that have worked for me and have allowed me to piece together a living over the long haul. I’m sure there are many other ideas out there about how to craft a lifestyle that allows for freedom and adventure while still meeting our financial obligations. Please share your thoughts and ideas in the comments section. We’d love to hear how you’ve managed to piece it together.

Tax Season Lessons: Independent Contractor Income

Piecing It Together: The Long Haul