Free Tax Tips

Question: $2,000 tax on $8,000 income?!?

I recently became a self-employed Pilates instructor (because there is no other kind), and am preparing my self-employment tax forms. I have estimated that I will make $8,000 for the second half of this year. And after calculating the honest way, my taxes owed on this $8,000 will be $2,000! I’m a full time student, so I can’t build up more hours or a business proper at this point. So, what the heck? Is this an egregious mistake on my part or does the IRS expect independent contractors to lie out to wazoo about their business expenses?

Answer: That will depend upon any other income that you have.

You’ll owe about $1,128 in Self-Employment taxes on $8,000 profit. If that’s your only income for the year you won’t owe any income tax unless you can be claimed as a dependent. (If you can be, tack on about $260 for Federal income tax.) If you have other income for the year, the $8,000 will be added to it to figure your income tax so it is entirely possible that you will owe a total of around $2k on it.

Forget about “lying out the wazoo” on your expenses. Small businesses are the MOST likely to be audited. Anything you claim that you don’t have proof of payment for will be disallowed. You’ll owe the tax, plus whatever penalties and interest are due on top of it.

Since you’re going to owe more than $1,000 on it, you do need to make estimated tax payments to avoid penalties and interest for underpayment of estimated taxes. Today was the due date for the 3rd quarterly payment so unless you’ve already been earning money at it for the past couple of months you don’t need to make any payments until Jan 15, 2009. So set aside enough to cover your tax bill and either make the Jan 15th payment, or file and pay in full by Jan 31st to avoid any extra penalties and interest.
Recapping final months of ’09 news

The Enterprise today completes its annual week-by-week look back at the most significant news stories of 2009 with capsule summaries from every issue in September, October, November and December. The first eight months of 2009 were recapped in the final t read more
Bookkeeping for the Self Employed Tracks Income & Expenses Automatically and Free

Question: Working for a real estate agent: Is this acceptable?

None of this is currently in place but I want to investigate the situation. I do not have a real estate license.

I would work for a licensed real estate agent as a consultant/contractor (I would get a 1099-misc for income tax purposes). Through my own (legal and ethical) means, I identify potential sellers and contact them. I truthfully tell the homeowner that I represent my real estate employer. If the home owner is interested in selling, my employer then contacts the homeowner. I do not try to get a contract myself. I receive a commission, yet to be decided: either a flat fee or a percentage of the selling price. My commission would not be passed directly to the homeowner, rather I would be paid as overhead, i.e. like a secretary would be paid.

Are there any legal problems with this arrangement?

Answer: Each state is a little bit different

But in general you would first have to contract with the Broker on record and not the agent; the agent in majority of states have no power by themselves in the real estate deal, all the authority comes from the Broker the agent is merely an employee of the Broker, the actual sales agreement is between the Broker and the seller not the seller and the agent

to wit, unless you are a licensed real estate agent in that state you may not receive a commission on the sale period; so your pay out could not be a % of the sales price

I guess you could for a flat fee go out and identify potential sellers and deliver that list to an agent without getting the broker involved but you could not use the name of the real estate agency in any of your dealings with the potential sellers , and not sure how much an agent would pay for such a list but people do pay for list of potential sellers or even buyers

The 7 most common tax mistakes

Find out what mistakes people often make on their returns and how to avoid them on yours.

Question: What happens if a tax form is disregarded while filing taxes?

I have received my W2 and 1099 forms, but my 1042S form got lost in the mail, was reissued, and was lost again. Since the tax deadline is approaching, should I just file with the forms I have and disregard the lost form? This lost form would have brought me more deductions, so I am the one who is at loss, not IRS.

Answer: You can file without it but then should later amend your return to claim this withholding.

You may want to file for an extension and then just do the return correctly the first time–less time and trouble.

Taxes Q&A: Tax deadline pushed back to Monday

Federal income tax returns, as well as Wisconsin and Minnesota state income tax returns, normally are due April 15. But the deadline for all three has been pushed back to Monday because the District of Columbia will observe Emancipation Day on Friday.

Read today’s letters to the editor

This handout image provided by the White House shows a copy of the long form of President Barack Obama’s birth certificate from Hawaii. / AP Photo/J. Scott Applewhite

Reagan v. Obama from iOwnTheWorld.com

Question: Are health insurance premiums considered nonemployee compensation or medical and health care payments?

I’m doing my taxes and these fall under 1099-MISC. I know the salary goes under non-employee compensation but are the health insurance premiums paid on my behalf also non-employee compensation or do they go in box #6 “medical and health care payments?” Thanks!

Answer: If they paid it on your behalf, it’s compensation.

However, *why* are you asking? You don’t fill out your own 1099-Misc.

Tips to meet the tax filing deadline

Tax deadline is less than 2 weeks away.

House Session 2011-01-20 (10:01:01-11:13:33)

Question: Can I write off business expenses like travel, etc. under a w-2 situation?

I’m working out of state (in CA) and being given money to cover travel and living expenses. Under a w-2, the income will be taxed at regular income rates. I’m trying to figure out if a 1099 would be a better situation over w-2 from a tax write off perspective.

Thank you….

Answer: Do you file Single? Do you have children? Do you own a home? Do you itemize your taxes? If you itemize, you can deduct nonreimbursed employee business expenses on Schedule A, even with W-2 income. There are expenses for temporary work assignments deductible on Schedule A.

If you don’t itemize, then a 1099 income would require you to file a Schedule C, small business. Your employer would NOT be withholding federal or state income taxes, social security or medicare taxes, or self employment taxes. You could then deduct your expenses by filing a schedule C, offsetting the 1099 income.

Look at irs.gov, maybe request several publications there. Suggest you speak with a tax professional.

Don’t Fall Prey to the 2011 Dirty Dozen Tax Scams

Robert Dean Larsen, a tax return preparer who operated a return preparation business in Apple Valley, was sentenced on February 7, 2011 to spend 66 months in federal prison after pleading guilty to charges that he conspired to defraud the United States and that he aided and assisted in the preparation of false tax returns.