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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

Everyone wants to pay less taxes if at all possible. But, since the IRS has so many rules and tax laws are complex, many people do not know what they can do or what they are entitled to do to lower their tax bills. This book called Lower Taxes in 7 Easy Steps will tell you what you can do to lower the amount that you owe the IRS. All of these steps that the book discusses are very simple, easy and straight forward and they are all legal ways. After all, you do not want to do anything that can risk getting on the wrong side of the IRS.

• Boost tax-free income
• Get a lower tax rate
• Defer paying taxes
• Make the most of deductions
• Take advantage of exemptions
• identify and use tax credits
• Shift income to other taxpayers

Each rule is fleshed out with plenty of ideas, strategies and real-life examples. In the end, you’ll save time and money with confidence.Take advantage of retirement plans, home mortgages, student loans, charitable contributions, medical expenses, dependents, even businesses that never get started– and more!

Buy Lower Taxes in 7 Easy Steps

If you owe taxes to the IRS but you do not pay them, then The Internal Revenue Service, or IRS will initiate collection proceedings against you. The IRS might not do it right away so it might be years before you hear from them about your past returns.

How does the IRS collect past due taxes?

The IRS will send you a bill. This bill will explain:

• the taxes owed (including penalties and interest applied to the unpaid balance) and
• the reason for the unpaid portion.

What if I do not think that I owe what the IRS claims that I owe?

If you don’t agree with the bill that the IRS sent you, contact the IRS immediately to discuss the charges necessary. Sometimes, the IRS will ask for more information and supporting documents and then will change your tax bill accordingly. Other times,  you might have to take it up with the Taxpayer Advocate instead if you and the IRS really cannot come to an agreement. Either way, you do have rights and the IRS cannot enforce something that is not correct.

What do I do if I agree that I owe the IRS according to the bill sent but I have no money to pay the IRS?

If you agree with the bill that the IRS sent but can’t pay the taxes because you do not have the money at the time, then it’s a good idea to make arrangements with the IRS directly. Some people can work out a repayment plan with the IRS or other settlement to pay your taxes. Lots of people do it so you will not be the only one who tries.

What happens if I pay my taxes late?

Any late tax payment to the IRS will accrue interest from the date the taxes were originally due. The IRS can also seize any tax refund you would receive from future returns.

Will there be a federal lien?

Failure to pay the IRS after a long time can result in liens or levies. With a lien, the IRS attaches a claim to all your property or rights to property, including your car and your house. On the IRS website, you will find a list of liens that the IRS has attached to properties all over the nation. This is not very common because taxpayers often manage to resolve the issues with the IRS before federal liens are placed but it does happen.

Is a federal lien published?

A Notice of Federal Tax Lien is public record. All your creditors will know that your property is claimed by the federal government. This will damage your credit and severely reduce your credit score.

Will the IRS sell my property?

Just like if you were in foreclosure, the IRS may take and sell your property to pay for your past-due taxes. This is called a ‘levy.’

Taxpayers who owe the IRS always hope to settle for as little as possible. They do not want to break any laws and they do not want to avoid paying taxes but the less taxes they have to legally pay, the better. Also, when the IRS claims that you owe them a certain amount, wouldn’t it be great if you knew how to settle with the IRS for pennies on the dollar? After all, as a taxpayer, you do have rights that you might not be aware of and those rights can work in your favor against the IRS. The IRS is not always right and you need to know the limits of their power.

This book here will outline and teach you how to do just that: settle with the IRS for pennies on the dollar. The book is called “How to Settle With the IRS for Pennies on the Dollar: The Unoffical Guide for Taxpayers Who Owe the IRS”

Buy How to Settle With the IRS for Pennies on the Dollar: The Unoffical Guide for Taxpayers Who Owe the IRS (Paperback) at Amazon