| 1:57 am on Mar 23, 2006 (gmt 0)|
I live in Washington State and I have a Washington State business license. I report income quarterly and also pay quarterly so there are no surprises at the end of the year. What you made and what you paid sounds just about right.
| 1:57 am on Mar 23, 2006 (gmt 0)|
One of the best features of having a small business is the tax deductions, especially the retirement plans. I would recommend reading the book from Nolo Press called Tax Savvy for Small Business if you want to try to lower your taxes. It may be a little late to do a lot for last year's taxes but it should help in the future.
If you want to save a lot of taxes it usually requires some upfront planning and decisions on your business structure, like setting up a corporation or LLC.
| 2:06 am on Mar 23, 2006 (gmt 0)|
Thanks you guys, sounds impossible but I guess it's right.
Now I know why my mom was always tearing her hair out around tax time...oh well at least
I have an income, right? I am going to go buy that book through one of my own amazon links. ha
| 4:45 pm on Mar 23, 2006 (gmt 0)|
|Do we really have to pay that much when our income is from aff programs? |
Income is income. Well, not exactly, but for the purposes of this discussion, online and offline income is the same. Income from affiliate sales and direct sales is still income.
Some of that amount may be from penalties because you owe so much (depending on what your tax situation was last year). Also, if you are not setup as a separate entity (LLC, corporation, etc.), remember that you are paying self-employment taxes on your profit on top of regular income taxes.
You definitely need to do some planning on how to structure your expenses and lower your profit.
| 4:49 pm on Mar 23, 2006 (gmt 0)|
proboscis, you didn't say what you paid in advance. Not knowing the real liability I'd guess on 33k, on the high end, you would pay $8250... with normal deductions resonably consider $5500.
| 5:08 pm on Mar 23, 2006 (gmt 0)|
It does sound a bit high for what you made. You should be in a pretty low tax bracket. I wish I only owed $6900. Actually I have no idea what I owe I just no I made about the same as I did last year and it was over $6900. Also part of that is a penalty. I paid about a 2% penalty for waiting until April to pay. To avoid this you have to pay up front like everybody else. Plus you are paying a high self employment tax. We have to pay about 14.5% of our income to social security. If you work for a company you have to pay it too. You just never see it becasue your company pays half of it for you. The other half comes out of your check every month in FICA.
| 7:19 pm on Mar 23, 2006 (gmt 0)|
It's hard to understand the forms, but I didn't pay anything up front and I made a lot more this year than last year.
It also looks like I would have paid 1500 more but they gave me a credit since my son is in college.
The only penalty I see is only 147 dollars. And yes it looks like a good chunk of what I am paying is self employment tax.
So, I am going to get a new accountant. I guess once you start making much over 30,000 you need to have a good one and meet with her more than once a year.
| 7:26 pm on Mar 23, 2006 (gmt 0)|
Well, the best accountant in the world can't help you that much after the fact. Unless your current one is an utter idiot (and there are definitely some of those...), had you talked to her earlier, when your income started going up, she could have advised you many ways to keep your tax hit down. When you met with her this year, if she didn't offer any advice, then I would definitely dump her.
| 7:26 pm on Mar 23, 2006 (gmt 0)|
This is self-employment income. That means effectively that you're paying more in taxes than you would if it'd been as salary, simply because you are responsible for what in that case have been the employer's share of Social Security and Medicare taxes. Normally you pay half of those and your employer pays the other half. If you are your own employer, you pay it all.
This is commonly called "self employment tax," and currently totals, between the two, 15.3%.
The only way you'd owe a penalty if you ended up making more than was expected would be if you were paying estimated taxes (in lieu of payroll tax withholding that would have been in place if you being wages) and had a big increase over the prior year. You'd also owe a penalty if you did not pay estimated taxes (it is a requirement); though in most cases you wouldn't be required to if this was your first year of self employment.
| 7:56 pm on Mar 23, 2006 (gmt 0)|
Jayc is right...
Taxable social security wages on $33000.00 ( x.124 )is $4902.00 and Taxable Medicare wages & tips on $33000.00 (x .029) is $957.00
| 8:00 pm on Mar 23, 2006 (gmt 0)|
Be glad you don't live in the UK. Lots of people pay 90% tax [webmasterworld.com] here.
| 9:36 pm on Mar 23, 2006 (gmt 0)|
You do not pay more taxes. Everybody pays the same thing. It just feels like you don't pay it because you employeer does. Trust me it comes out of your pocket. They would pay you more if they did not have to pay that.
| 9:49 pm on Mar 23, 2006 (gmt 0)|
Note that your self-employment tax is based on your NET self-imployment income, not GROSS. So if you have $33,000 in revenue, but $13,000 in expenses, you're only being taxed on $20,000.
Also, all the deductions for spouse and kids, personal exemptions, mortgage interest & property taxes deductions, etc. lower your overall income tax rate, but have no effect on your self-employment tax. Continuing the example above, if you're married with 2 kids and paid over $10,000 in mortgage interest last year, then your taxable income would be $0 (your $20,000 in self-imployment net income minus over $20,000 in deductions and exemptions). So you would have a $0 income tax liability. BUT, you would still have the self-employment tax liability on the $20K.
| 10:22 pm on Mar 23, 2006 (gmt 0)|
If you don't need all of your income to cover your living expenses, you can save a lot of taxes with your own retirement plan(s). If you are married and you and your spouse each have your own business set up and each have a retirement plan, you can defer quite a nice chunk of income from taxes.
Fidelity has small business retirement advisors that I found very helpful, and they will also set up the plans for you for free, even the self employed 401k plans which a lot of other investment firms don't offer or they charge to set up.
| 11:09 pm on Mar 23, 2006 (gmt 0)|
|Everybody pays the same thing. |
It doesn't really work like that. You're forgetting the wealth taxes like IHT, Capital Gains, Stamp Duty etc. There are a lot of taxes designed to hit people who are considered more able to pay. Everybody doesn't pay the same percentage of their income in tax.
| 1:06 am on Mar 24, 2006 (gmt 0)|
I agree but we are talking about a guy that made $33K gross.
| 7:12 am on Mar 24, 2006 (gmt 0)|
You need 2 things:
1. A good accountant.
2. A good tax Attorney.
With a 33K income as a SEP I doubt you would have to pay any income Fed tax at all, but, you would have to invest in a SEP IRA to legally get around it.
It is not too late, you can still look at retirement funds right now to reduce your tax liability!
I'm not a great believer in SEP IRA's (at this time), but for those that don't like paying tax and are self employed they should be considered ;)
| 10:47 am on Mar 24, 2006 (gmt 0)|
|we are talking about a guy that made $33K gross |
I don't understand how the level of his income makes any difference to what I said i.e that everybody doesn't pay the same tax percentage.
percentages is right, you need a good accountant. The Catch22 is that good accountants cost money and you need to make a lot of money before you can get a good accountant who'll show you how to pay no income tax at all. ;)