Indies Pay Less SE Tax In 2011

Hi June,

Wondering if the Payroll Tax Cut will affect Indies, too--i.e. will our Self-employment taxes go down for 2011? I think your readers would like to know!

Thanks,
Jolene


Hi Jolene,

"Enjoyed" my morning coffee reading the regs on the new tax act. We in the tax business know it as "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, H.R. 4853." I would much rather have been reading Harpers or The New Yorker. Or even The Economist.

Anyway, to your question:

For 2011 only the social security rate is reduced by 2% for employees and for the self-employed.

For example, if you are self-employed with net income subject to SE tax, instead of paying $1,530 SE tax, you will pay $1,330.

If you have employees, you must reduce the Social Security withholding from his or her paycheck by 2%. So instead of withholding 6.2% you are to withhold 4.2%,

That means if you pay someone $100 and for Social Security and Medicare Tax you were withholding $7.65 [the employees 1/2] you will now withhold $5.65. The employer's share is still $7.65. The total = $13.30.

Time for more coffee!
June

Sometimes I just have to show the question.

Hi June Walker,

My name is Copeland and I have a Franchised Cleaning Business and I've been in business for 2 years and my question to you is the food I buy from the Grocery store is that a tax write off.

Copeland
Middletown, DE


Copeland --

Why in the world would you think your food is a business deduction? everybody has to eat.

-- June

Where To Get Health Insurance

June --

Psychotherapist since 2000. I welcome your comment

After COBRA, where do I find the best health insurance for the Indie???

Kathryn
Rolling Hills Estates, CA

Dear Kathryn,

Taxes are easy. Insurance is difficult! Start by asking for a recommendation from the insurance agent who handles your auto or home insurance. He or she will know the recent changes in your state and which coverage is the best for you.

I do not recommend NASE -- the National Association for the Self-employed.

-- June

Deductible Refinancing Costs

June,

I was wondering if refinancing a mortgage loan - points, appraisal fee, broker fee, escrow fee. are those deductible?

Thanks,
Justin

Justin --

Non-finance charge costs when refinancing are added to the cost-basis of your home.

Finance charges -- "points" -- are amortized as a mortgage interest expense over the life of the loan.

For instance, a 30 year mortgage refi taking place on January 2 with $3,000 in points gets a $100 [3000/30] mortgage interest deduction per year.

-- June

No Deduction For House-sitter

June --

Truck driver for 25 years. We have finally hired a house sitter for when we are gone trucking. Is the $15 a day we pay her considered a deduction?

Patricia
Toledo, WA

Dear Patricia,

No deduction for the house-sitter.

-- June

Selling A Website or Business Equipment

June,

I contacted you 3-4 years ago regarding my website business that is a sole proprietorship and 1099s. I have another question. I sold my main revenue generating website. It used to make me money through advertising. I'm going to give a simple rundown to clarify things. Let's say it made $1,000 every year. This was posted with a yearly 1099 by my web sponsor. [I think he means that the guy who paid him the $1000 per year sent him a 1099 stating the income.] However, this year I got a buyer that wanted to pay me $10,000 for it. So I sold it.

My question is: the website includes the domain, website assets, and full ownership of the website. Does that $10,000 become a capital gains tax? Also, I've worked on this website and filed taxes on it since 2006, so does this mean it becomes a long term capital gains tax?

Thanks!
Justin

And another …


June –

I do music composition/instrument sales. Question: I re-sell some instruments and sometimes there is a profit other times a loss. End of the year I have a net loss. Do I owe social security tax [I think he means self-employment tax] on those items sold for profit.

If there is a profit from the total sale of instruments BUT after including business expenses there is a net loss - do I owe social security tax on the profit sales?

Thanks for your time.
Jeff
St. Louis, MO


Hi Guys,

Earned income is money you receive for services you perform or products you sell. It is on your net earned income that you pay self-employment (SE) tax.

Justin, you sold a website. Unless you are in the business of selling websites or domain names the income from that sale is not earned income. It is gain from the sale of an intangible -- can't pick it up in your hand -- business asset. It is long term. It is not part of your self-employed income.

Jeff, you say that you are in music composition and instrument sales. If you write music and then simply sell instruments that you don't use anymore then the sale of that "equipment" is not part of your earned income. You would have a capital gain or loss on your tax return. That gain or loss is not part of your self-employed income.

If,however, you are in the business of buying and selling musical instruments, then they are the products you offer for sale and any income or loss is part of your self-employed income. It is subject to SE tax.

-- June

Your Vote Is Needed

Hi Indies, a quick note:

Please take a look at my earlier review of The Wealthy Freelancer .

I just heard from author and colleague, Ed Gandia. The book is in the running for the "Small Business Trends Reader's Choice."

Please take a moment to read my review and if you like what you've read, vote for Ed's book right here: http://bookawards.smallbiztrends.com/entrepreneurship/the-wealthy-freelancer/ . Just hit the vote button. It really takes only 2 seconds to vote.

Thanks.
June