Forum Moderators: martinibuster
It is income, I fail to see why you are wanting to cheat the government just because advertising revenue isn't a conventional "job."
(Note that is should not simply be lumped in with W-2's - but should be reported as self-employment income (unless you are setup as a company).)
Be assured that anything you get on a 1099 is also reported to the IRS. And while it may take them a few years to catch it - they generally will notice. And then they'll happily add lots of penalty and interest to the original taxes.
It comes out that I lose about one quarter of my AdSense income to the US Government each year, using quarterly payments. Some of which I will hopefully get back when I retire either at 62, 65 or 67 years of age. A long way to go, but it is better than nothing.
For example, if GOOG pays you $4000, you paid $1800 for hosting (12 mos. x $150/month), you spent $1200 for AdWords, and paid a writer $1000* to write content for you, your net profit would be $4000 - ($1800 + $1200 + $1000) = $0, so no S/E tax owed.
*NOTE: if you paid a writer more than $600, you would have to issue a 1099 to him/her and file a copy with the IRS.
Minus Expenses (hosting fees, advertising expenses, personal computers, computer supplies, ISP charges, state income taxes... )
From there you'd want to apply your incremental tax rate to all earnings (assuming this is not the sole source of income). I suspect that many people on this forum (even those with hobby sites) pay estimated taxes every three months or so.
A few quick comments on BillyS's post:
- personal computers: a PC is an asset (not an expense) and must be depreciated, and you can only deduct the percentage of business use of it. (Yes, you *can* Section 179 the full amount in the year you bought it, subject to several restrictions.)
- state income taxes: not deductable against S/E taxes (but you can still deduct them against your overall taxable income, if you itemize); however, state sales taxes are a whole other beastie
- S/E tax rate is applied to *profit* (revenue minus expenses), as per the example I gave previously.
Also note that 50% of the amount you pay for S/E tax is deducted from your taxable income- you subtract the amount on the front page of your tax return.
I suspect that many people on this forum (even those with hobby sites) pay estimated taxes every three months or so.
Nope, I checked that little box that causes them to withhold. I know I should pay estimated instead, but I REALLY hate paperwork.
is it really possible to estimate your year-end income to within $1,000?
Yes it is, but you don't have to.
You pay your first estimate based on what you have made so far, and what tax bracket you think you will be in. You don't have to be real accurate, just put in a good faith effort.
Your second payment you do the same thing, and put in any adjustments to the first quarter now that you have more information.
Same with the third quarter.
The fourth quarter is due after the end of the year, so you should know exactly what you made all year if you've been keeping track. You make any final adjustments.
You don't have to be within $1000, you have to be within 10% or $1000, whichever is greater.
But if you are making more money than the year before, what it really comes down to is that you have to pay estimates and withholding on the previous year's income.
Just get a copy of 1040-ES and jump through the hoops to see what I mean. The IRS site also has some pretty good coverage on when penalties apply and when they do not. Or just ask your tax preparer.
Does anyone know if I need to file estimated tax with the state of California?
[edited by: Johan007 at 12:17 pm (utc) on Jan. 4, 2008]
This form is a simple way to deduct up to $5,000 in business expenses. Some of the expenses I will list are:
Telephone, DSL, Hosting, Domain names, P.C. upgrades, P.O. Box, postage stamps, printer ink, paper, etc.
I'm sure there are many others, but I cannot think of any at the moment.
Maybe some of you can post what you will deduct for 2007.
Setting up a corp of LLC just for adsense probably doesn't pay unless you are making a good bit of money. In addition to the taxes, we pay a good bit each year to our accountant.
The trick is to deduct everything that is reasonable AND legal. Do not deduct anything unless it is legitimate. Every year the IRS needs to stick some heads on pikes to keep us plebes in line.
The warning about paying your federal taxes quarterly is really important. The penalties for underpaying or not paying are draconian (After all, the legislators get themselves elected by offering lots of free stuff to people.. guess who provides the money for that free stuff?)
I'm not a tax accountant, but I think you can save your bacon in an under-payment of quarterly earnings by increasing the heck out of your withholdings if you are in a w-2 situation. AGAIN - Check with a qualified tax advisor.
Incorporating does have a lot of advantages besides limited liability. For example, AFAIK, interest on loans and credit cards paid by the business on business accounts is deductable where it is not for personal.
One added bennie is that you give your companies EIN not your SSN to the various affiliates you deal with. That reduces the risk of identity theft somewhat.
When you start looking at your marginal tax rates and the amount of time you put into a website, you begin to wonder if it is all worth it.
"Republics will only last until the public finds that they can vote themselves largess from the public trough".. Sorry, I forget the originator of that quote
cg
I report everything-including overseas payments (and loses from defunct companies that don't pay). Good tax returns help buy houses, cars, etc.
You might want to confirm that what you characterize as a loss (for non-payment) is an allowable deduction for U.S. income tax purposes. Unless that non-payment was incurred in direct relation to an out-of-pocket expense, it probably doesn't qualify.
Also the prior info someone gave about HAVING to pay approx. quarterly estimated taxes in not entirely true. The IRS (and even turbotax) would truly LIKE you to believe this, and I always did until I hired a tax professional. However, due to the one big documented 'exception', as long as you pay ALL (or 90% of?) your curent owed taxes or all your PREVIOUS YEAR's taxes by Jan 15, you will receive absolutely no penalty. Check with a true tax pro (no not H&R Blockheads) if you don't believe me. So I put my first three qtrs of tax money into CDs where I can't touch it and collect interest until I need it Jan 15. Never been audited in over 20 years.
To '40+% in Canada'... Even though the $C is now worth as much as the $US, I still REALLY feel for you! Especially since the temp is probably well below 0C up there right now... why DO you all stay up there? :)
