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How do you guys handle your taxes for your earnings?
abel122




msg:1160474
 4:13 pm on Dec 1, 2004 (gmt 0)

Hi guys.

I am curious to know how you affiliate marketers take care of your taxes. All insights will be greatly appreciated.

 

patient2all




msg:1160475
 4:47 pm on Dec 1, 2004 (gmt 0)

Well you should either receive or download a 1099 with your earnings from each affilate you made money from. BTW, I wouldn't even think of not declaring every penny. There is a nice audit trail for every penny you were paid.

You'll need to get in the habit of paying estimated taxes each quarter if your tax bill is over, I believe, 10% of what was withheld. Your expected estimated taxes are what you owed last year that wasn't otherwise withheld (which is normally everything from affiliate programs since nothing is withheld). You should increase your estimated payments if you expect to make more.

The penalties for misjudging your estimated taxes are not huge, but why incur them?

I also pay a 4% self employment tax for some reason.

Remember EVERYTHING is a deduction. AdWords ads, internet service, printer paper, cartridges, domain name payments, books to help you learn and more.

The one thing I am hazy about this year is the 6% SSN tax that is normally withheld from paychecks. I left my job in Novemeber this year so I probably had almost enough withheld, but for next year I'll have all earnings from consulting and affilate programs most likely.

All this is just my own scenario, may not apply to all.

patient2all

skibum




msg:1160476
 5:02 pm on Dec 1, 2004 (gmt 0)

Merchants and networks request a form (1099, maybe?) and then they send you another form that states how much they've paid you if it more than $600.00 during the year. They send a copy of that to the IRS.

You claim all ad expenses ad deductions and can might be able to claim net access, hardware, and other things as deductions as well. Best to get some kind of tax software to help or talk to a tax pro.

This is in the US.

abel122




msg:1160477
 5:06 pm on Dec 1, 2004 (gmt 0)

Thanks guys.

So you basically have a business in your name. What kind of a business is it and how do I go about getting one in my name? I am in the US.

patient2all




msg:1160478
 5:10 pm on Dec 1, 2004 (gmt 0)

There are advantages to having a business in your name that you would have to learn from a tax pro. Especially a LLC if you feel you could be sued.

I've gotten by just being me, sole proprietor.

patient2all

Go60Guy




msg:1160479
 5:15 pm on Dec 1, 2004 (gmt 0)

I don't know about other states, but in California you can file for a fictitious business name with your county recorder. This enables you to open a separate bank account in the name of your business.

In my opinion, its highly advisable to have separate accounts for personal and business. It helps avoid vagueness about one's finances, and is invaluable at tax time.

PPCBidder




msg:1160480
 5:27 pm on Dec 1, 2004 (gmt 0)

I also pay a 4% self employment tax for some reason.

It's a lot more than that, man. The government really rapes you on this. About 15% up to $87,000 and 2.9% thereafter. You can deduct half of this, but in many situations the deduction ends up being phased-out anyway which is completely unfair.

If you end up right around $87,000 taxable -- when totalling up your state taxes etc, your effective tax rate can easily end up being in the mid 40%'s. Talk about helping small business to succeed...

e.g. owing $40K in total taxes on $87K is not out of the question depending on the state you are in.

Last year my effective rate was over 41%. Ridiculous!

[edited by: PPCBidder at 5:39 pm (utc) on Dec. 1, 2004]

gnomedeplum




msg:1160481
 5:30 pm on Dec 1, 2004 (gmt 0)

Earnings?

I hardly make any money on the internet - and those little trips to Vanuatu have nothing to do with their off shore banking facilities - I go for the sea food. ;)

Go60Guy




msg:1160482
 5:38 pm on Dec 1, 2004 (gmt 0)

I agree that once your earnings climb above $87,000, that self employment tax is a real drag.

One way of reducing the social security tax obligation is to form a Subchapter S corporation. Make youself an employee at a modest salary, pay both employee and company social security contributions based on that salary, and take the rest as distributions on which social security does not have to be paid.

Again, the advice of a competent tax advisor is crucial.

PPCBidder




msg:1160483
 5:41 pm on Dec 1, 2004 (gmt 0)

Actually once you get above $87,000 is when it drops off, Go60Guy, from over 15% to 2.9%.

So if you can, it is best to either be well under or well over that mark year to year. If you are right around that amount every year, you get taken for even more on your $ as a sole proprietor!

edit - note i've looked into incorporating, and while it can save you some i remember then you also owe some other tax you don't as a sole proprietor - something amounting to around $10K in my case so you end up getting raped either way. So I've been lazy and not done it. As far as 'S' i'll look into that.

[edited by: PPCBidder at 5:49 pm (utc) on Dec. 1, 2004]

Tropical Island




msg:1160484
 5:41 pm on Dec 1, 2004 (gmt 0)

Taxes? What are taxes?

PPCBidder




msg:1160485
 5:42 pm on Dec 1, 2004 (gmt 0)

Yeah, I should run my business from a tropical island, my bad.

PPCBidder




msg:1160486
 5:55 pm on Dec 1, 2004 (gmt 0)

Anyway abel, I think you deserve a better response sorry for going off topic.

In the very basic sense, all you need to do is file schedule C. You take your 1099's and enter them as income. Then, (as stated previously) you deduct things like internet access, domain regs, adwords expense. (Just run a report for Jan 1-Dec 31 - there are ways to use a slightly different fiscal year, but this is the easiest and most audit-proof method).

It is rather straightforward if you don't try to squeeze the IRS in any way =P With home tax software it shouldn't take you much longer than the average joe with a standard job - just make sure to take all of your available deductions!

abel122




msg:1160487
 7:50 pm on Dec 1, 2004 (gmt 0)

Thank you all for your input.

Just to clarify. I have a full time job and I plan on keeping it. Can I file schedule C only if I have a business or I can just attach it to my next tax return? I really don't want to have any problems with IRS so I want to make everything 100% legal and will most likely contact an accountant.

Go60Guy




msg:1160488
 10:59 pm on Dec 1, 2004 (gmt 0)

I think the short answer is that you'll need to file a Schedule C if your self employment income exceeds $600 for the year. And, its best to see an accountant for your tax prep., so that all available deductions are made available to you.

buckworks




msg:1160489
 11:23 pm on Dec 1, 2004 (gmt 0)

Be sure to keep a good paper trail for all relevant expenses.

Someone who worked for Revenue Canada once told me that the most common reason that home business deductions would be disallowed was not that they weren't valid expenses, but that they weren't adequately documented. I'd expect the situation might be similar elsewhere. Save those receipts!

PPCBidder




msg:1160490
 2:39 am on Dec 2, 2004 (gmt 0)

That's the other thing. I was rather disappointed with home-office deductions once you see how they work. Don't get overhyped about them. If you follow the rules the most you can get out of it is only around $1000 in deductions, and as a part-time job likely $0. (e.g. I declare one room of my house, 11% of total square footage, so the main deductions are 11% of my yearly heating/cooling bill, mortgage interest, and property tax (home portion only/no land) - that's about it)

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