June –
I am a nuclear engineer from Knoxville, Tennessee. I just started December 3, 2007. I would like to start off without calling attention to the IRS.
I assume I need to pay quarterly estimated taxes but am not sure how to estimate them.
When was the last update of your book, Self-employed Tax Solutions?
If I use Schedule C must I also fill out the SE Form?
Your help would be appreciated.
Thanks,
Max
Hi Max,
I am not sure what you mean by “without calling attention to the IRS.” And if you mean you don’t want to call attention to yourself in the eyes of the IRS, I am still unsure.
Every new indie -- such as you – needs to get as much information about self-employment income, expenses and taxes as possible. Your goal should be to pay the least tax legitimately possible and to avoid missed deadlines and payments so that you don’t get stuck paying penalties and interest.
As in nuclear energy, the aim is economy, simplicity and doing it right. Rather than thinking of your task as an indie in terms of keeping the government off your back or out of your business affairs, think in terms of avoiding mistakes and delays that would cause problems and overpayment of taxes – in other words, learn how to do it right.
Here is my post on how to calculate and pay Estimated Taxes .
Yes, a Schedule C: Profit or Loss from Business, and a Form SE: Self-employment Tax, are part of your tax return.
My book, Self-employed Tax Solutions, just went into its 6th printing. My purpose in writing it is to give indies an understanding of how the IRS looks at self-employment and also to give them a basic foundation in income, taxes, expenses, and recordkeeping. The book does that and will always do that.
Other than an adjustment to the treatment of start-up costs the tax laws have not changed since the book was published in 2005. As you may know from reading my material or attending one of my seminars I advise indies to have a professional prepare their returns. So, when I say that the tax laws haven’t changed I mean, for example, that the method of recording and calculating business miles remains the same. Yes, the per mile amount allowed by the IRS changes every year. That is something your tax pro knows or you can look up on the IRS site. But, what your tax pro probably has not told you, nor has it changed, is that you should write down your odometer reading in your calendar on New Year’s Eve before you go out to party.
Get the idea? Hope that helps.
Best,
June
Friday, March 28, 2008
Friday, March 21, 2008
File an extension. It's the smart thing to do.
This post originally ran last April.
Tax deadline ... Relax ... File in October instead of in April
Your sister has a spring wedding planned and you’re the maid-of-honor. The April tax filing deadline is just around the corner, but there’s no time to think taxes right now.
Or…When you and Gail broke up last week, you left your tax records at her house. You’d prefer to let the storm pass before you stop by to pick up your things.
Or… The project you've been working on has taken so long that you haven’t found time even to look at your mail much less get your tax records together.
Will any of these reasons for filing late pass muster with the Internal Revenue Service? An unnecessary question, because you don’t need a reason to file your return after the April deadline. You can wait as late as October 15!
THE BENEFITS OF FILING AFTER APRIL 15
Ignore the old husbands’ tale that filing an extension triggers IRS computer screens to flash “Audit this return!” Not so. An extension gives you more time to collect and review your material. And, even if you have your return completed by the end of February, it’s better for you to hold that return for a little marination.
Here’s why: Most taxpayers think there is only one way to prepare a tax return. Tax pros know that income and deductions can be treated in a variety of ways. If your tax preparer understands the self-employed life, she is equipped to make choices to your tax advantage. And many of her choices for your 2007 return may depend upon your income and expenses in 2008. The later into 2008 the more you’ll know about 2008.For instance, a substantially higher income in 2008 than in 2007 may warrant a fuller deduction in 2008 for equipment purchased in 2007. Or, with a high 2007 income you may want to make a hefty contribution to your self-employed pension. If you don’t have the money right now to put into that pension, an extension gives you until October 2008 to come up with your 2007 pension contribution.Take your time and talk with your tax professional about creating a favorable tax scenario.
HOW DOES AN EXTENSION WORK?
Tax returns are due April 15. The IRS offers you an extension that gives you until October 15 to file your return. You may also need to file a state extension.
Be aware than an extension gives you more time to file your return – but does not give more time to pay your taxes. Your taxes for 2007 are due by April 15, 2008.
Automatic Extension Form 4868 must be filed by April 15. You can file online, by phone, or by mail. If you file an extension you have until October 15 to file your return.
To complete the extension, estimate your total tax liability for 2007 using tax returns of previous years as a guide. For instance, if you made 25% more in 2007 than in 2006, pay at least 25% more in taxes. If you made less, pay less. It’s best to overestimate the tax you’ll owe.
Pay the balance due or as much of it as you can. If you can’t pay the full balance due when filing your extension, or if you underestimate your tax liability, you will be charged penalty and interest on the amount owed when you file your return. Always file an extension, even if you cannot pay the full balance due.
And, come return filing time, if you still don’t have the money, don’t file your return late. File on time and you can pay your tax later. If you file your return late, in addition to any late payment penalties and interest you could also be hit with a late filing penalty.
Some anxious people rush to pay their income tax by taking cash advances on credit cards. That’s a foolish move. MasterCard and Visa finance charges are higher than Uncle Sam’s.
Federal extension form 4868 can be downloaded here.
You can get most state extensions on line. Search by your state name and the words "tax return extension."
Tax deadline ... Relax ... File in October instead of in April
Your sister has a spring wedding planned and you’re the maid-of-honor. The April tax filing deadline is just around the corner, but there’s no time to think taxes right now.
Or…When you and Gail broke up last week, you left your tax records at her house. You’d prefer to let the storm pass before you stop by to pick up your things.
Or… The project you've been working on has taken so long that you haven’t found time even to look at your mail much less get your tax records together.
Will any of these reasons for filing late pass muster with the Internal Revenue Service? An unnecessary question, because you don’t need a reason to file your return after the April deadline. You can wait as late as October 15!
THE BENEFITS OF FILING AFTER APRIL 15
Ignore the old husbands’ tale that filing an extension triggers IRS computer screens to flash “Audit this return!” Not so. An extension gives you more time to collect and review your material. And, even if you have your return completed by the end of February, it’s better for you to hold that return for a little marination.
Here’s why: Most taxpayers think there is only one way to prepare a tax return. Tax pros know that income and deductions can be treated in a variety of ways. If your tax preparer understands the self-employed life, she is equipped to make choices to your tax advantage. And many of her choices for your 2007 return may depend upon your income and expenses in 2008. The later into 2008 the more you’ll know about 2008.For instance, a substantially higher income in 2008 than in 2007 may warrant a fuller deduction in 2008 for equipment purchased in 2007. Or, with a high 2007 income you may want to make a hefty contribution to your self-employed pension. If you don’t have the money right now to put into that pension, an extension gives you until October 2008 to come up with your 2007 pension contribution.Take your time and talk with your tax professional about creating a favorable tax scenario.
HOW DOES AN EXTENSION WORK?
Tax returns are due April 15. The IRS offers you an extension that gives you until October 15 to file your return. You may also need to file a state extension.
Be aware than an extension gives you more time to file your return – but does not give more time to pay your taxes. Your taxes for 2007 are due by April 15, 2008.
Automatic Extension Form 4868 must be filed by April 15. You can file online, by phone, or by mail. If you file an extension you have until October 15 to file your return.
To complete the extension, estimate your total tax liability for 2007 using tax returns of previous years as a guide. For instance, if you made 25% more in 2007 than in 2006, pay at least 25% more in taxes. If you made less, pay less. It’s best to overestimate the tax you’ll owe.
Pay the balance due or as much of it as you can. If you can’t pay the full balance due when filing your extension, or if you underestimate your tax liability, you will be charged penalty and interest on the amount owed when you file your return. Always file an extension, even if you cannot pay the full balance due.
And, come return filing time, if you still don’t have the money, don’t file your return late. File on time and you can pay your tax later. If you file your return late, in addition to any late payment penalties and interest you could also be hit with a late filing penalty.
Some anxious people rush to pay their income tax by taking cash advances on credit cards. That’s a foolish move. MasterCard and Visa finance charges are higher than Uncle Sam’s.
Federal extension form 4868 can be downloaded here.
You can get most state extensions on line. Search by your state name and the words "tax return extension."
Home Office Warrior: Hire Your Spouse
June,
I saw your guest post on Home Office Warrior and had a follow-up question.
You mention hiring your spouse and providing "generous" employment benefits, such as health insurance coverage. I'm wondering whether my spouse has to work for me as a full-time employee for that to work.
My wife does a few things for me, but it's nothing near full-time. Health insurance and copays are eating our lunch. Can I hire her and provide her "family" benefits if she only works about 10 hours a week?
Todd Smith, Attorney at Law
Austin, TX
todd@appealsplus.comSource
Dear Todd,
Your wife may work for you for as few or as many hours as you choose. Her pay must be comparable to others in your geographic or virtual area who do the same kind of work .
This is not a place to be creative. Your spouse must really work for you and you must set it up formally. You must ...
File all federal employment and state employment forms and pay your wife by check or direct deposit into her account.
Set up a health benefit plan for her -- referred to as a Plan 105 for IRS code section 105. You can get more info on Section 105 at BizPLan or contact John Gill at BizPlan 800.422.4661 ext 4345 or John@tasconline.com. I have no financial relationship with John or BizPLan. I use their services for my clients. They are good, and John explains this well. Once the plan is set up all medical insurance as well as medical expenses for the entire family may be a business deduction.
There is more information on this here in my blog in the category payroll -- spouse as employee .
Best,
June
I saw your guest post on Home Office Warrior and had a follow-up question.
You mention hiring your spouse and providing "generous" employment benefits, such as health insurance coverage. I'm wondering whether my spouse has to work for me as a full-time employee for that to work.
My wife does a few things for me, but it's nothing near full-time. Health insurance and copays are eating our lunch. Can I hire her and provide her "family" benefits if she only works about 10 hours a week?
Todd Smith, Attorney at Law
Austin, TX
todd@appealsplus.comSource
Dear Todd,
Your wife may work for you for as few or as many hours as you choose. Her pay must be comparable to others in your geographic or virtual area who do the same kind of work .
This is not a place to be creative. Your spouse must really work for you and you must set it up formally. You must ...
File all federal employment and state employment forms and pay your wife by check or direct deposit into her account.
Set up a health benefit plan for her -- referred to as a Plan 105 for IRS code section 105. You can get more info on Section 105 at BizPLan or contact John Gill at BizPlan 800.422.4661 ext 4345 or John@tasconline.com. I have no financial relationship with John or BizPLan. I use their services for my clients. They are good, and John explains this well. Once the plan is set up all medical insurance as well as medical expenses for the entire family may be a business deduction.
There is more information on this here in my blog in the category payroll -- spouse as employee .
Best,
June
Saturday, March 15, 2008
New Mexico Gross Receipts Tax
Hi.
I'm writing for state specific advice. I've been a freelance part-time alternative builder, sometimes handyman for years. I've been out of the tax system for years also, but now I'm going to reenter. That's not the question though.
My residence is here New Mexico and I did a few small jobs this fall. I have already e-filed my federal (only SE tax due), and was starting to do the same for state when I saw, to my horror, that New Mexico appears to charge a "Gross receipts tax" Gross is the word ! It's a tax on all services (not just goods), it appears.
My question is this: Do micro biz independents really have to pay this too? No exemptions that I'm missing? I earned $4000 last year and it appears that even though I'm at half the poverty level, I have to pay 7.25% on every dollar I charged, BEFORE my expenses. I'm shocked. I'm already paying the 15% SE tax. That brings up my second question: Do you know how the state determines one's presence here? I travel a lot (mostly recreation) and one could say I'm here more or less, depending on what's best... do they have a way of checking?
Thanks, Steve
New Mexico
Hi Steve,
New Mexico Gross Receipts Tax -- NMGRT -- is a bit like sales tax and it gets paid to the state of New Mexico only once on a service or product.
Think of it this way: If you fix my window you charge me NMGRT on your fee for labor. You send that tax to NM.
If you purchase a new window to install for me then you would charge me tax on both the window and your labor. However, when you bought the window, were you legit, you would give the window seller a certificate to show that his selling you the window was not the final sale because you were then going to sell it to me so you would not have to pay NMGRT on that purchase.
And, yes, you do have to pay the tax. If you intentionally don't pay it it's fraud. How will they find you? Well, what if that window repair you did for me was for my office and I wrote off the expense on my tax return? And then I was audited. Besides, you drive on the roads that that tax helps to maintain.
My friend, Shirley George Frazier, has a good blog post on state sales tax in general. Check it out here.
Cheers!
June
I'm writing for state specific advice. I've been a freelance part-time alternative builder, sometimes handyman for years. I've been out of the tax system for years also, but now I'm going to reenter. That's not the question though.
My residence is here New Mexico and I did a few small jobs this fall. I have already e-filed my federal (only SE tax due), and was starting to do the same for state when I saw, to my horror, that New Mexico appears to charge a "Gross receipts tax" Gross is the word ! It's a tax on all services (not just goods), it appears.
My question is this: Do micro biz independents really have to pay this too? No exemptions that I'm missing? I earned $4000 last year and it appears that even though I'm at half the poverty level, I have to pay 7.25% on every dollar I charged, BEFORE my expenses. I'm shocked. I'm already paying the 15% SE tax. That brings up my second question: Do you know how the state determines one's presence here? I travel a lot (mostly recreation) and one could say I'm here more or less, depending on what's best... do they have a way of checking?
Thanks, Steve
New Mexico
Hi Steve,
New Mexico Gross Receipts Tax -- NMGRT -- is a bit like sales tax and it gets paid to the state of New Mexico only once on a service or product.
Think of it this way: If you fix my window you charge me NMGRT on your fee for labor. You send that tax to NM.
If you purchase a new window to install for me then you would charge me tax on both the window and your labor. However, when you bought the window, were you legit, you would give the window seller a certificate to show that his selling you the window was not the final sale because you were then going to sell it to me so you would not have to pay NMGRT on that purchase.
And, yes, you do have to pay the tax. If you intentionally don't pay it it's fraud. How will they find you? Well, what if that window repair you did for me was for my office and I wrote off the expense on my tax return? And then I was audited. Besides, you drive on the roads that that tax helps to maintain.
My friend, Shirley George Frazier, has a good blog post on state sales tax in general. Check it out here.
Cheers!
June
Friday, March 14, 2008
Listen to June speak about tax pros, deductions and more.
Listen to June speak on Startup BizCast #35 - Small Business Taxes Pt. 1 (June Walker) and Startup BizCast #36 - Small Business Taxes Pt. 2 (June Walker)
Host of Startup BizCast, Steve Mullen says: Because it’s tax season, I wanted to make sure you all get a heavy dose of advice about taxes for your small business. So, I’ve decided produce Startup BizCast’s first two part episode. My guest for the next two programs is June Walker.
In the first episode, June and I spend a good bit of time talking about how to choose a tax professional to work with you this year. We also discuss the all-important deductions that will help save you money.
In the second episode, Startup BizCast #36 - Small Business Taxes Pt. 2 (June Walker) June gives us advice on business structure and how it affects your tax liability.As I did last week, I’ve devoted the entire episode to my conversation with June, preempting Biz Cast Brief. The small business news segment will return next week!
Host of Startup BizCast, Steve Mullen says: Because it’s tax season, I wanted to make sure you all get a heavy dose of advice about taxes for your small business. So, I’ve decided produce Startup BizCast’s first two part episode. My guest for the next two programs is June Walker.
In the first episode, June and I spend a good bit of time talking about how to choose a tax professional to work with you this year. We also discuss the all-important deductions that will help save you money.
In the second episode, Startup BizCast #36 - Small Business Taxes Pt. 2 (June Walker) June gives us advice on business structure and how it affects your tax liability.As I did last week, I’ve devoted the entire episode to my conversation with June, preempting Biz Cast Brief. The small business news segment will return next week!
Thursday, March 13, 2008
Bootstrapper: Lots of Info for Freelancers
Bootstrapper has listed this blog as one of the best 100 blogs for freelancers. The other 99 could be a very useful resource, too. You might want to take a look.
Wednesday, March 12, 2008
A Terrific Mother-in-Law
June--
My future son-in-law is a full time student. He plays with a band most every weekend. To his surprise, the band gave him a 1099 MISC. He of course had no clue this was going to happen and had not paid any taxes.
I figure the band is treating him as a self-employed musician. I'm trying to help him reduce his taxes. Can we deduct the expenses of the silly suits he had to buy for the band and the microphone he had to buy? What about mileage to and from the gigs? Am I overlooking anything else? He uses his computer for school, but also to communicate with the band and get the music to practice. Can he deduct part of the cost of the Internet? Anything else?
Thanks!
Deborah
Baton Rouge, LA
Deborah ... "to his surprise the band gave him a 1099-MISC." Did he think that because music is so loved in this country that musicians are exempt from paying taxes? No way. Big tax credits and loopholes are only for the very rich. How naive of him.
You say "the band is treating him as a self-employed musician." Well, that's because he is a self-employed musician
Click here for a complimentary list of 100+ Indie Business Expenses to get started on knowing what expenses he may deduct.
You'll be a terrific mother-in-law!
Best,
June
My future son-in-law is a full time student. He plays with a band most every weekend. To his surprise, the band gave him a 1099 MISC. He of course had no clue this was going to happen and had not paid any taxes.
I figure the band is treating him as a self-employed musician. I'm trying to help him reduce his taxes. Can we deduct the expenses of the silly suits he had to buy for the band and the microphone he had to buy? What about mileage to and from the gigs? Am I overlooking anything else? He uses his computer for school, but also to communicate with the band and get the music to practice. Can he deduct part of the cost of the Internet? Anything else?
Thanks!
Deborah
Baton Rouge, LA
Deborah ... "to his surprise the band gave him a 1099-MISC." Did he think that because music is so loved in this country that musicians are exempt from paying taxes? No way. Big tax credits and loopholes are only for the very rich. How naive of him.
You say "the band is treating him as a self-employed musician." Well, that's because he is a self-employed musician
Click here for a complimentary list of 100+ Indie Business Expenses to get started on knowing what expenses he may deduct.
You'll be a terrific mother-in-law!
Best,
June
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