Income Taxes on the Road

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Even when you live on the road, both of the "sure things" in life still exist, with one of them being taxes. More specifically, the income type.

We've discussed previously some tax advantages that exist when you establish domicile in an income-tax-free state. As of the time this is written, the states without a state income tax are Alaska, Washington, Nevada, Texas, Wyoming, South Dakota, Florida, and Tennessee. Although New Hampshire does not charge tax on earned income, it does with unearned income (i.e. dividends and interest). The state where you establish domicile is going to cover bank interest, stock dividends, and capital gains, with each being a nice tidy supplement. But maybe you're wanting to work on the road, whether it's at the place you're staying, or somewhere in town. In addition to the federal rates, you may end up with another bill on your hands, so be ready for additional paperwork if you work in a state that wasn't listed.

Regardless of what state you're in, it's important to understand, and is a good idea to ask during the interview process, how you are being paid if you're workamping for salary. Are you receiving a W-2 as an employee, or are you receiving (or at least SHOULD be receiving) a 1099 as a self-employed contractor? This makes a big difference, because if it's the latter, you're going to be responsible for paying the entirety of Social Security and Medicare taxes, which is above 15%. If you receive a W-2, these are typically deducted as a "payroll tax" (look for FICA on the pay stub), of which the employer and employee both pay half, so if you're self-employed, you can deduct half from the adjusted gross income. An important note about these taxes is that they are due not only on April 15th, but also every quarter. You'll want to get familiar with Schedule C, Schedule SE, and the 1040-ES for estimated payments, but be careful not to get too "cheeky" with the deductions, because they might not be business related. If you've overpaid throughout the previous year, you can hold some or all of the refund as a prepayment for next year, which will help to offset these costs for at least part of the first quarter.

While we're on the subject of "every quarter", it's actually a good idea to reconcile your income generated at the end of each quarter: March 31st, May 31st, August 31st, and December 31st. Those middle two dates are intentional. Remember that 15 days after each of the aforementioned, taxes are due. When you're a full-time RVer, you're going to find that your rate of income could wildly change throughout the year. If this wild change puts you at a point where you're going to have to pay penalties, having these reconciliations will help you. You are able to reduce penalties based on an extrapolated income you would have made if what you did for the given period remained the same throughout the year. To figure this out, multiply quarter 1 by 4, quarter 2 by 2.4, and quarter 3 by 1.5 (now you see why those two weird dates are a month early).

As a quick disclaimer: The information provided may or may not be accurate as of the time you read this, so it's best to consult with a tax professional before making any sort of financial decisions. They'll make sure you're doing well when you Follow your Internal Compass.


WRITTEN Mar 10, 2024 at 12:23 PM
TAGS: rv living, workamping
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