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This 39 message thread spans 2 pages: 39 ( [1] 2 > >     
Real Profit
After taxes.
jchampliaud




msg:536375
 11:44 am on Apr 29, 2005 (gmt 0)

After seeing these threads For everyone - $2739.726 per day is possible [webmasterworld.com] and The quest to $300/day [webmasterworld.com] seems a lot of people are making good money off their web sites. But just a question, is it really that good after taking out taxes? I just got hit with a tax bill of over $1000 (back taxes for 2003 and taxes for 2004) and my site is in the $15 to $20 range. I wonder what someone making $300 would have to pay?

 

FourDegreez




msg:536376
 12:10 pm on Apr 29, 2005 (gmt 0)

I'm going to start setting aside a third of all checks for taxes now that I'm starting to make more. And also there's the question of whether I'm supposed to start paying quarterly taxes now, eep. How many people out there pay quarterly taxes, and what is the method for doing so?

jchampliaud




msg:536377
 12:19 pm on Apr 29, 2005 (gmt 0)

How many people out there pay quarterly taxes, and what is the method for doing so?

I'm paying quarterly taxes for 2005. It was my accountantís suggestion; she was the one who worked it out with the IRS. I canít remember if that was part of my $1000 tax bill or not. Have to look at my records. Sounds like a good idea puting money a side.

MovingOnUp




msg:536378
 2:38 pm on Apr 29, 2005 (gmt 0)

Someone making $300 per day would make $109,500 per year. If they maxed out their SEP IRA, they could put away $21,900 per year tax deferred. Between federal, state, and self-employment taxes on the rest, they would probably pay around $30,000 to $40,000 in taxes. That would leave around $50,000 per year after taxes and IRA contributions.

tsinoy




msg:536379
 3:18 pm on Apr 29, 2005 (gmt 0)

isn't it a privilege to pay taxes since you are making more? :)

anyways, have anyone considered using a corporation(or other biz entities) so that you only pay corporate taxes of whatever is maintained as profits? corporations are tax at a lower percentage, if I'm not mistaken about 25% as oppose to upto 30 or 40% for individuals making $100K/year? You can just issue smaller checks to yourself as salary and maintain the rest of the profits in the corporation.

And one major advantage of using a corporation is to protect yourself from liabilities...

And if you use a corporation, can you use the corporation to invest on some other business, maybe like rental properties?

It seems to me that you don't have to pay yourself too much, you can legally use a corporation to do things for you like maybe, buy a rental property(that you can rent to yourself) or lease a car and write it off. Can someone confirm that this can be done(well I'll probably check with my accountant soon)?

Another thing is, maybe you can also create pension plan for yourself with numbers higher than a regular sep ira, anyone done this before?

Anyways, just wanted to throw this out there...

FourDegreez




msg:536380
 3:34 pm on Apr 29, 2005 (gmt 0)

But how much can you really benefit from keeping most of your money tied up in the company? I guess you could do some inventive things, but then again you might just be begging for an IRS audit. And if you were to pay yourself most of the money, you're paying double tax. Plus, corporations add numerous other hassles.

hunderdown




msg:536381
 3:43 pm on Apr 29, 2005 (gmt 0)

If you also work in a job with a salary, you can have extra tax withheld from each pay check, which to my mind is much easier to manage than making a lump sum quarterly payment. If you don't have an accountant, tax return software like TurboTax has a "tax planning" feature or something similar that will help you figure how much extra to withhold.

tsinoy




msg:536382
 3:46 pm on Apr 29, 2005 (gmt 0)

Fourdegrees,

your salary is pretax on the corporation level, so whatever you retained should be something you're not planning to pull out anytime soon but more for other investments. But if you think about it's not the money under your name that's important but it's the money you can spend(on other things rather than taxes) or have control of is what's important.

the thing with the irs audit is that you need to make sure you are doing everything within the law not trying to scheme the government of not paying taxes with illegal activities. I would recommend to work out the details of your corporation with your accountant & lawyer. You spend probably $5000 a year with these professionals but the taxes you save could be several tens of thousands of dollars.

the government introduce biz entities for the rich to shelter their money since the government is operated by mostly the rich... :) And in my opinion corporations are created so that the sophisticated rich can keep the profits, generate good income and eventually hire other people thus creating jobs and the likes to improve operation, so in the end if you think about it, it benefits the government more...

Michael Anthony




msg:536383
 5:04 pm on Apr 29, 2005 (gmt 0)

Once you make really good money, it might pay you to talk to someone about offshore accounting and more global than local tax solutions.

Such advice is not cheap, until you see how much it might save you.

diamondgrl




msg:536384
 5:54 pm on Apr 29, 2005 (gmt 0)

Incorporating is not a way to save tax dollars. It's a way to pay more. You are double-taxed, once at a corporate level and once at the personal level when you withdraw funds. There are some tax breaks you can take advantage of so it's not as bad as it might seem at first, but it's bad.

Creating an LLC or similar legal structure means you pay taxes only on what you personally take from the business.

Also. to say your accountant arranged with the IRS to pay quarterly, well, I suppose in a way. However, that is what is legally required. You must file quarterly or else risk backtaxes, interest, penalties and in severe cases, criminal liability. Furthermore, not paying has all kinds of negative implications, such as in getting a mortgage you will have to say whether you owe the feds any money for backtaxes. Get caught in a lie and it's bank fraud.

tsinoy




msg:536385
 6:07 pm on Apr 29, 2005 (gmt 0)

Incorporating is not a way to save tax dollars. It's a way to pay more. You are double-taxed, once at a corporate level and once at the personal level when you withdraw funds. There are some tax breaks you can take advantage of so it's not as bad as it might seem at first, but it's bad.

I wholeheartedly agree with you diamondgirl... double taxation happens if you pay yourself via dividends... but if you pay yourself via salary and bonuses aren't this pretax dollars at the corporation level? Aren't they counted as corporate expenses?

well there's advantages and disadvantages of different enttities and only a tax accountant/preparer/lawyer would know more about these things in detail.

Richard Overvold




msg:536386
 6:19 pm on Apr 29, 2005 (gmt 0)


Incorporating is not a way to save tax dollars. It's a way to pay more. You are double-taxed, once at a corporate level and once at the personal level when you withdraw funds. There are some tax breaks you can take advantage of so it's not as bad as it might seem at first, but it's bad.

I'm going to go ahead and disagree with you. Corporations are the best way to save on taxes. If you've done your homework, then you'll know that pulling out distributions from an S-Corp is NOT taxed on a corporate level, yet the only thing taxed is the total profit of the company, after it flows onto your personal return. 1 tax level. Double taxation only comes from a CCorp, and unless you're a publicly shared company, there's no reason to be a C-Corp.

Richard Overvold




msg:536387
 6:29 pm on Apr 29, 2005 (gmt 0)

I'd just like to add that Corporations, LLC's can both be taxed as an SCorp, or CCorp.

MovingOnUp




msg:536388
 6:59 pm on Apr 29, 2005 (gmt 0)

It's definitely something to explore. It will vary depending on what state you're in, how much you make, and how much you retain in the corporation. For most people, I would think a sole proprietorship or an S Corp would be best.

For instance, if you make $100,000 per year in California, you're going to pay a lot as an individual (federal, state, local, and self-employment). If you earn $1,000,000 per year in Washington state, you're in the top bracket federally, but you have no state income tax and your self-employment tax caps out at around $90,000 in earnings. In this case, there might not be much of a tax advantage to incorporating.

Michael Anthony




msg:536389
 7:39 pm on Apr 29, 2005 (gmt 0)

Until the non-existent internet money tax police catch me, I still think offshore and invisible makes the best sense!

GuitarZan




msg:536390
 8:12 pm on Apr 29, 2005 (gmt 0)

Hey,

I agree whole-heartedly with Mike once again.

I have already done a bit browsing around at off shore information and really, the savings are great! Get taxed in Canada or America at 30-50% or get taxed on the islands at 5% or lower. Not a hard decision.

You can pay someone under $5000 to get it all setup for you. Basically this person is very knowledgeable with offshore tax laws, and your countries tax laws, and gets you set up properly.

The one thing I am wondering is if you do the offshore thing, do you have to spend a certain amount of time in the specific country per year?

All the Best,

C.K.

FourDegreez




msg:536391
 8:15 pm on Apr 29, 2005 (gmt 0)

Corporations are the best way to save on taxes. If you've done your homework, then you'll know that pulling out distributions from an S-Corp is NOT taxed on a corporate level, yet the only thing taxed is the total profit of the company, after it flows onto your personal return.

How is that any different than just not incorporating and paying normal income tax? I don't see how you "save on taxes" this way. Unless you're talking about being able to deduct business expenses.

Personally, I think an LLC is the way to go.

hunderdown




msg:536392
 8:26 pm on Apr 29, 2005 (gmt 0)

I have already done a bit browsing around at off shore information and really, the savings are great! Get taxed in Canada or America at 30-50% or get taxed on the islands at 5% or lower. Not a hard decision.

For some people, who don't like freeloading, that WOULD be a hard decision. Personally, I wouldn't feel comfortable living in the US, reaping the benefits of other people's taxes, from public libraries to protection from terrorism, and paying no tax myself.

Of course, ethical standards vary. To each his own.

Richard Overvold




msg:536393
 8:39 pm on Apr 29, 2005 (gmt 0)


How is that any different than just not incorporating and paying normal income tax? I don't see how you "save on taxes" this way. Unless you're talking about being able to deduct business expenses.

Personally, I think an LLC is the way to go.


Deductions! That's what it's all about really.

LLC and taxed as an SCorp, that's the best way to go.

diamondgrl




msg:536394
 8:47 pm on Apr 29, 2005 (gmt 0)

I was talking about a C-Corp vs. an LLC. Sorry I didn't specify the difference between C-Corps and S-Corps.

LLCs have largely replaced the S-Corp as the organization of choice for the kind of thing we do, although I understand the tax treatment is the same. But I think LLCs give better legal protection. Talk to a lawyer or read up if you're really interested.

GuitarZan




msg:536395
 9:14 pm on Apr 29, 2005 (gmt 0)

Hey,

For some people, who don't like freeloading, that WOULD be a hard decision. Personally, I wouldn't feel comfortable living in the US, reaping the benefits of other people's taxes, from public libraries to protection from terrorism, and paying no tax myself.

Of course, ethical standards vary. To each his own.

Its not a question of ethics... The government has been freeloading off the people for years.

As far as I am concerned, until I see tax dollars going to something useful I don't want to put my own money into the coffers :)

BTW, where I live they have even shut down the hospital!

All the Best,

C.K.

[edited by: GuitarZan at 10:06 pm (utc) on April 29, 2005]

tsinoy




msg:536396
 9:31 pm on Apr 29, 2005 (gmt 0)

had a short conversation the other day with my tax preparer, he said that US citizens and residents are tax worldwide.. whereever the money source is... isn't that nuts? :)

btw, I did thought about the LLC(or SCorp w/ tax pass through election - tax on the individual level) and a LLC(CCorp non-pass through election tax at the corporate and tax at the individual level when dividends / distributions are made to the individual).

Anyways, please correct me if I'm wrong or way off... I'm exploring 2 options...

a)LLC passthrough - the thing I'm not so happy about with LLC passthrough is you don't have a choice by the end of the year all profits needs to be declared as the owner's profit which is tax at your bracket if you make above $100K you're probably in the 35% bracket.

b)LLC non-passthrough - the thing I'm not so happy about non-passthrough election is that you will be taxed twice if you issue distributions or dividends.. but the good thing about this is you don't get taxed twice on payments made as salary or bonuses... so can't you just pay yourself bonuses or salary and not do any type of dividen distribution? and whatever you want to reinvest just retain it in the LLC and it get's taxed at the 25%(or whatever the tax level is) level?

any thoughts? Not sure if I was clear with my explanation...

One_on_One




msg:536397
 9:46 pm on Apr 29, 2005 (gmt 0)

Just to explain the S-Corp advantages....

You save taxes because you can avoid double FICA. FICA is 15.3% for the self-employed. Let's say you make $100K. You are required to pay yourself a "reasonable" salary. You could justify something like $30K in salary. In an S-Corp you are taxed pass-through so you're taxed on all $100K as far as federal and state tax (for most states). However, you only have to pay the 15.3% extra tax on the $30K. As a sole proprietor, you pay 15.3% extra on all $100K! As a S-Corp, you distribute the remaining $70K as dividends.

So, as an S-Corp you save 15.3% of $70K on the above scenario...let's see that is about $10,500.

tsinoy




msg:536398
 9:50 pm on Apr 29, 2005 (gmt 0)

cool... that's a great example... one_on_one. :)

MovingOnUp




msg:536399
 1:05 pm on Apr 30, 2005 (gmt 0)

How is that any different than just not incorporating and paying normal income tax? I don't see how you "save on taxes" this way. Unless you're talking about being able to deduct business expenses.

The main difference to me is that you don't pay self-employment tax (FICA) on S-Corp earnings. There may be a few business expenses that S-Corps can take but sole proprietors can't, but that's pretty minor. Also, make sure to check to see how your state taxes S-Corps.

I'm not 100% sure, but I think pass-through income from LLC's is still subject to self-employment tax.

I might have to look into tax rates in the islands. I wouldn't mind living there, especially if I get to keep almost twice as much of my money.

GuitarZan




msg:536400
 1:57 pm on Apr 30, 2005 (gmt 0)

Hey,

I might have to look into tax rates in the islands. I wouldn't mind living there, especially if I get to keep almost twice as much of my money.

Nice. I think as one guy mentioned, the US still taxes you wherever you are... Canada may too. I think in that case you may have to denounce your citenzenship just to legally go to one of the islands (not sure).

They really don't want us getting much better rates :)

All the Best,

C.K.

Richard Overvold




msg:536401
 3:40 pm on Apr 30, 2005 (gmt 0)

Also, make sure to check to see how your state taxes S-Corps.

See, here in Florida, there is ZERO state tax. :)

the US still taxes you wherever you are

Greedy... How else are they going to fund the war in Iraq?

GuitarZan




msg:536402
 7:09 pm on Apr 30, 2005 (gmt 0)

Hey,

Greedy... How else are they going to fund the war in Iraq?

Agreed Rick.

And besides the point, I don't really think the government has the right to know half of what it does about any individual.

The government not knowing about my money, and not being to collect on it (save for buying goods) will be one more thing to not deal with.

For anyone that thinks that doing off shore stuff is treason and immoral - Think about the above again.

All the Best,

C.K.

Michael Anthony




msg:536403
 7:50 pm on Apr 30, 2005 (gmt 0)

If someone pays you US$ to an offshore corporation it doesn't count as personal income. If that corporation then makes property investments...

And ethics - I'll leave to those of you who enjoy arguing.

Richard Overvold




msg:536404
 9:14 pm on Apr 30, 2005 (gmt 0)

The ole property shelter. I may have a word with my CPA regarding this with my current set up. Always on the look out for nice little loopholes.

This 39 message thread spans 2 pages: 39 ( [1] 2 > >
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