Forum Moderators: LifeinAsia
I live in Washington state. Does that sound right to you? Do we really have to
pay that much when our income is from aff programs?
:(
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.
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
Do we really have to pay that much when our income is from aff programs?
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.
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.
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.
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
= $5049.00
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.
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.
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.
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 ;)
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. ;)
