Missed estimated payment: Not a big deal

June --

I'm self employed. I just got my taxes back from my accountant (I was only FT self-employed for about 1/4 of 2009, so I still had a reasonable tax refund last year (don't ask, minimum wage with child credits, etc).

Anyhow, my accountant applied my refund towards my estimated taxes for 2010 (which is a good thing). My next estimated tax payment is now due, and I won't have it for a little while.

So right now, it looks like this.

Original fed refund: 2000
Original estimated payment due 4/15: 3000
I don't have the $1000 right now to pay Fed (or the $800 for state).

Can I make those payments on the *next* quarterly payment? Or am I going to get penalized by the IRS if I pay my estimated taxes later than the quarterly due date?

Either way, it's going to be late... but I need to know if it can wait until the next quarter, or if I need to pay it ASAP, and then pay the *regular* estimated payments next quarter.


Eric
Technology Consultant


Dear Eric,

You may wait until the next quarter payment and add the difference to that.

If yours and your tax pro's estimate of 2010 income is correct and you should have paid exactly $3000 as an estimated, then when you pay the missed $1000 in June instead of April it will cost you only a little bit of interest.

You will have owed the IRS $1000 for 2 months. At 5% a year that's $8.33 interest. Which is calculated later, when you file your 2010 tax return.

Read this post: A Primer on Estimated Taxes .

-- June

Net profit is subject to tax.

June --

I have a question. I teach Metal Clay classes (making fine silver jewelry from silver in clay form). I charge $85 fee which includes $35 for supplies. What portion of this do I have to pay tax on as income. I am assuming I would just claim $50 as income but I wanted to be sure.

Edith


Edith --

An indie claims all income she receives. That's gross income.

Then she deducts all expenses.

What remains is net income or profit or loss. It is that amount on which you are subject to tax.

Here are more posts on income .

-- June

Meals & Entertainment Deduction @ 100%

June – Not quite sure how to both post a comment and ask a question in the same fell swoop on your blog page, so I’ll try here in e-mail instead. [Ron, click "comments" at the end of the post.]

I found you because I was looking for information on business checking online today. The fees, beginning at $12 monthly (for the least expensive option) seem unnecessary, and as I have been keeping solid records since beginning my consultancy last year, think I’m going to stick with the personal account for now. Nice to see someone provide a good rationale for what seems a rational choice. [Ron refers to this post: You Do Not Need A Business Checking Account .]

But now I have a question. You wrote as an example to deducting a business expense: "A carpenter deducts not only the tools that she buys, but also the expense of dining out. Why? Because during the meal with her husband she talks about her new business, gets his advice on questions of scheduling, picks his brain about various proposals, and tests his reaction to her brochure. She could not have had this business discussion at the family dinner table with her three children in attendance and so the gift given to her brother as thanks for baby-sitting while she was at this dinner is also a business expense."

Is this deductible at 50% for meals and entertainment, or is there another, full deduction category to be considering?

Thank you – Ron
Long Beach, Calif


Ron --

It's great to learn that my business-checking-post will save you $144 a year.

The carpenter's business meal is a 50% deduction as are just about all meals and entertainment.

The only M&E deductible at 100% are those that are offered to the general public. For instance: If you have an open house to display your artwork and you provide wine and snacks to visitors, that food and beverage is a 100% deduction.

Meals & Entertainment expenses are further explained in my book Self-employed Tax Solutions.

-- June

Refunds & Extensions.

June,

If you file an extension and know you don't owe taxes to IRS, but are due for a refund, do you just file the extension?

Thanks.

Rita

That's correct, Rita.

-- June

Talk with an indie-savvy tax pro. Use the loss.

June:

To file or not to file. H&R Block tells me I had no taxable income for 2009, and that I don't have to file. My VA check is not taxable.

I spent last year researching a novel and working on a manuscript. This year will be different. I am working with an editor and a publisher. I have never been in this position.

Don't I have to send the IRS some kind of form?

Donna
Lakewood, NM


Dear Donna,

You may not be required to file a tax return but it is to your tax advantage to file a tax return.

I assume that as a writer you had expenses, such as: research; office; travel; phone; ISP; etc. With no income those expenses result in a business loss.

I will not get into heavy tax jargon but know that there is something called a "net operating loss." The regs on that have recently been expanded. What it means is that if you have a loss, that loss may be deducted from income in a previous year or in a future year. Yes! That loss can get you back some tax money on previously-filed tax returns. Or tax returns not yet filed.

File an extension. Here's a link with info -- #23 Be Smart: File An Extension. And then get yourself an indie-savvy tax pro.

-- June

Deducting Education Expenses

June --

Massage Therapy 1 year as an indie.

I was wondering if I can deduct the cost of my massage therapy school on my tax return. I went to school in 2007 and 2008 but did not start working until 2009. I was told by some colleagues that I can deduct the cost of school the first year I start working. I want to make sure this is true before I file my taxes.

Thank you for your help.
Mary
Lyons, IL


Hello Mary,

I doubt you'd take advice from me on massage procedure and method. So it's good that you are checking out the tax advice given you by your fellow massage therapists.

They are wrong.

The costs of education to learn a new profession is not a business deduction. It doesn't matter when the expense occurred.

You may deduct the costs of education to maintain or augment skills in your current profession.

There are non-business tax benefits for the costs of education -- both credits and deductions. They could have been taken in 2007 and 2008. Discuss with your tax pro whether you took advantage of them and whether or not it is worthwhile to amend your back returns if you did not.

-- June

Lorenzo Landscaper's Business

June --

I'm from Woodbridge, VA. I am a full time fireman who does side work cutting lawns. I've been doing lawns for 3 years. My brother and I who is also a fireman cut lawns together and split things 50/50. We don't have a business license or TAX EIN because we have never made enough money to claim until this year.

This year we will receive our first 1099MISC form ever and will be claiming our side income as well. When we get paid the check comes to me in my name as will the 1099 for the full amount we were paid. Is there anyway for me to claim half that total on my income taxes as other income and somehow let the IRS know my brother is claiming the other half?

I tried calling the IRS and got no where, but was told I could send my brother a 1099 from myself to make it happen is that true?

If so what are the logistics? Would we be better off filing for a tax# and doing a completely separate business return although we don't have records for any deductions?

Thanks for you time.
Herb The Fireman


Hello Herb,

First, let's go over a few things.

You said "we have never made enough money to claim." Know that no matter how much you make, you must claim it all.

The feds do not require you to have a business license nor a tax ID #. Although your town or county might.

The income that you and you brother earn is not "other income" it is self-employed income.

You each must claim the income on Schedule C: Profit or Loss From Business which is part of your personal/individual tax return.

Since the income comes to you then you should send your brother a 1099MISC for his 1/2 of the income. If you don't send him a 1099 it is not a big deal. You could be fined $50 for not filing that form. In 30 years I've yet to see that happen. You should give him his 1/2 via a check from you so that you have a record of payment. Since this is after the fact -- i.e. after 12.31.09 -- at least have some paperwork, such as an invoice from your brother marked paid, attesting to the transaction.

I do not give specific, line-by-line tax return instruction so I can't give you more "logistics."

One of the characters in my book Self-employed Tax Solutions is Lorenzo Landscaper. You might want to check out the book to see if Lorenzo's deductions give you any ideas on what yours might be.

Best,
June