Forum Moderators: martinibuster
I am a student in college with a website that I make very good money off of. I have been using adsense for about a year now, and just paid personal income tax on my earnings paid to me last year. I currently am working on numerous other sites that will run adsense and hopefully make me more money. As my income gets greater and greater, the need for a better tax shelter grows more important.
First off, what should I do to set myself up as a self employed person? I do not have any employees or anything, just me. What IRS form do I fill out to declare myself and my earnings as a self employed person? What do I go about doing tax time to declare my income? Exactly what deductions have people taken off of income to make tax free?
What state paperwork is required to deal with state income taxes? I am not looking to get out of paying my share of income taxes to the government, I am more interested in trying to keep my disposable income as high as possible to expand rather than have the burden of serious income taxes come next tax time.
As usual thank you all
One thing I would take issue with is your description:
"avoid paying personal income taxes" (with an implied OWED?)
No-one should ever "avoid paying personal income taxes" OWED. People go to jail for that. Seriously. You are allowed to take "business deductions". Those deductions are outlined in the IRS code and a good accountant will help you with those. The difference is like the difference between stealing and taking out a loan. In both cases you get the money, but one is illegal and the other a common and acceptable business practice.
Two things to keep in mind that were told to me a long time ago:
"Never take a deduction for something you didn't pay for." and "Always claim all of you income."
I'm also wondering if this post might work better here in the Professional Webmaster Issues Forum?
>Usual disclaimer: I'm not a tax expert, not do I claim to be.<
Glad to hear things are going well for you.
Not sure if TOS will allow me to, but here are two books that brought me up to speed real fast:
~ Own your own corporation, Garret Sutton
~ Tax savvy fro small business, Frederick Daily, NOLO Press
Hope that helps!
KOB
By the way my computer (on which I design websites THAT use ADSENSE) is broken can anyone fix IT!
In the general tax parlance, "avoid" is used to relate to legal tax planning, and "evade" is used to discuss illegal methods.
And yes, you can "avoid" personal taxes "owed." Simple example: I have $2,000 of income, and "owe" taxes on it. I make a deductible IRA contribution of $2,000. Poof. I just avoided the tax on the $2,000.
There is nothing in the original post that implies anything more dastardly than that.
MQ
The only way I'd consider getting a business license is if you were getting revenue from clients then definitely it makes sense. With a 1099 from google and that's it save yourself the trouble and continue just doing your business in your name.
You may want to consider moving to a business tax friendly state...say for instance no personal sate income tax or corporate tax like Nevada once you graduate from college.
[taxfoundation.org...]
Myself...I plan to open a side business and buy a toyota sequoia since it weighs over 6,000 lbs which means it'll be 100% deductible...payments and interest. If the vehicle weighs less than 6,000 lbs it's only 50% deductible IIRC. One thing the IRS will crack down on is if you just open a business to claim deductions and don't make a valiant effort at growing it so be aware of that.
Take into consideration that you are adding another layer of paperwork on top of just doing business on your own, and depending on the state that you are in will probably incurr other fees.
You are right of course. I tried to be specific, as in "OWED".
If you've taken the deductions and filled out your 1040 you get to a line that says 'taxes due' or something like that. What I was saying is that that number is "OWED". I fully agree with your analogy/example, except that no tax is "owed" after the deduction.
We're basically saying the same thing. :>)
I was a little concerned by the phrases used because it seems those phrases are used by people hawking illegal tax schemes (How to avoid income tax: You don't need to pay any. Click here for our free software and seminars.)
There are some fascinating documents and arguments out there for some tax issues. It's actually quite fun reading.
But I digress: Yes, you are correct.
With that said ...
Both my father, mother, and I have each set up our own businesses for tax purposes. Neither Dad nor I have ever gone so far as to get a business license, incorporate, etc. Mom has more of an actual business in terms of real-life, in person clients, so she did get one, but I don't think it's necessary as far as the IRS is concerned.
If you do get a business license, you can write off the cost, but I don't think you have to have any kind of official licensed business to file business income. One thing to watch out for here on an audit is that if you have a "day job," and the income from that is more than what you're making in your business, the IRS might decide that it's not a legitimate business but rather a hobby, which is taxed differently.
Anyway, I would strongly suggest that you get either an accountant (best idea) or TurboTax (or similar tax program) to help out with this stuff. TurboTax is what I use, and it's pretty good for finding various business expenses and so forth and asking you about things you might not have thought of. For example, home office, vehicle expenses, cash vs. accrual, etc.
If you are the intrepid, do-it-yourself type, for self-employment/business income, at a minimum, you will need to fill out form 1040 (long form), Schedule C (Profit or Loss from Business), and Schedule SE (Self-Employment Tax). As a student, you may want to also look into the Hope or Lifetime Learning credits to see if you're eligible (form 8863). The IRS has these forms on their site, along with various instructions.
If you do not have a "day job" where they withhold taxes, and if you're not filing quarterly, you should know that you could be liable for penalties for not paying as you go. What I do is just have more tax withheld on my day job so that I don't have to file quarterly and it makes up for what I make with Adsense and other web stuff.
DISCLAIMER: All of the above is based on what I, myself, personally do every year and/or have read in the IRS or (sometimes) TurboTax documentation. It is NOT based on any particular legal or accounting principles because I am not a lawyer or an accountant. Your mileage may vary.
In determining whether you are carrying on an activity for profit, all the facts should be taken into account. No one factor alone is decisive. Among the factors to consider are whether:You carry on the activity in a business-like manner.
The time and effort you put into the activity indicate you intend to make it profitable.
You depend on income from the activity for your livelihood.
Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business).
You change your methods of operation in an attempt to improve profitability.
You, or your advisors, have the knowledge needed to carry on the activity as a successful business.
You were successful in making a profit in similar activities in the past.
The activity makes a profit in some years (and the amount of profit it makes).
You can expect to make a future profit from the appreciation of the assets used in the activity.
source: [irs.gov...]
