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Old 11-27-2012, 12:38 AM
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How do you figure self employment taxes and charitable donations?

I desire to become self employed as an affliate marketer through the Amazon Affiliate program. I know they desire a tax ID and I believe this is for tax reporting purposes? With earnings such as this am I correct to believe that you receive a form once you exceed $600 for a calendar year? Please clarify for me because I believe situations like online selling and the like are required to reported to the government as taxable income once you exceed $600 and you are considered a business rather than a hobby. (Is that true?)

My question is I know you have to pay taxes based on your tax bracket. And I know you have to pay self employment taxes. I am very unclear on self employment taxes. I currently receive SSI and if I made say $100 a month I believe this would be in the 15% bracket, but am not sure how much a percentage the self employment taxes would be. What percentage would employment taxes be for a 15% tax bracket? Is there an online calculator that would make this easy to calculate and get a good figure? Also how would charitable donations be figured in? (I donate $30 a month) I am hoping to learn this information so that I would have a better idea of how to do my taxes or understand them if I had them done by someone else.

Are self employment taxes different from income taxes? I heard they are 12.9% I believe and I wasn't sure if you are in the lowest tax bracket if you have to add that tax % to that one. (ie 15 to 12.9. Or is just 12.9% you would pay as a self employed person?) I am a newbie at this and am trying to understand how it works.


PS I was told on another site to seek tax advice about this. I DON'T HAVE THE MONEY TO GO TO SOMEONE so PLEASE give me some real advice on this. I receive SSI, Food benefits and live in Section 8 housing. The way things are set up, my income will be severely affected by self employment and the taxes will take a a chunk that I must be aware of up front. Please don't give me anything else, but the advice I requested as that is the advice I need for my situation.

Thanks



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Old 11-27-2012, 02:41 PM
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“I desire to become self employed as an affliate marketer through the Amazon Affiliate program. I know they desire a tax ID and I believe this is for tax reporting purposes? “------>It depends;aslong as you are a sole proprietor, your SSN# is your Tax ID.HOWEVER, your business structure is a S- or reg C-corporation, SMLLC or partnership , then you need a tax ID.For example, An Employer Identification Number, EIN, is a unique tax id number assigned to businesses so that the IRS may keep track of them. In this way, the EIN is very similar to your SSn#. If an LLC has more than one owner, “member”, it must apply for an EIN. Additionally, if yur LLC has any employees other than the single owner, it must apply for an EIN. If, however, your single-member LLC has no employees, you may be able to use your personal SSN as your LLC’s unique identification number for the purpose of filing taxes.
“With earnings such as this am I correct to believe that you receive a form once you exceed $600 for a calendar year? “-If you are making money with affiliate programs on your website, you must declare that affiliate income on your taxes each year. If you make more than $600 from an affiliate program, you are required to report it on your taxes. Most affiliate program companies send you a 1099 if you have made over $600. But ultimately it is your responsibility to report your affiliate income on your taxes on Sch C of 1040 and Sch SE and 1040.
“Please clarify for me because I believe situations like online selling and the like are required to reported to the government as taxable income once you exceed $600 and you are considered a business rather than a hobby. (Is that true?)”----> As described below, you need to file your return as a self employer as long as the amount on Sch C line 29/31 is $400 or exceeds $400 and need to pay SE tax as long as the amount on Sch SE line 4 is $400 or exceeds $400. See below on estimated tax requirements. If you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income,i.e., wages salaries or other earned income I mean. Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit.
In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit. The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year . In order to make this determination, taxpayers should consider the following factorsoes the time and effort put into the activity indicate an intention to make a profit? Does the taxpayer depend on income from the activity? If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?Does the activity make a profit in some years? OR etc.
If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.Deductions for hobby activities are claimed as itemized deductions on Schedule A (Form 1040).

“My question is I know you have to pay taxes based on your tax bracket. And I know you have to pay self employment taxes. I am very unclear on self employment taxes. I currently receive SSI and if I made say $100 a month I believe this would be in the 15% bracket, but am not sure how much a percentage the self employment taxes would be. What percentage would employment taxes be for a 15% tax bracket?”----->I assume that you are single, then, your SSI benefits are NOT subject to income tax UNLESS your provisional , I mean, MAGI(AGI+50% of SSI benefits+ tax exempt interest income or etc) is $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year. $32,000 for married couples filing jointly.$0 for married persons filing separately who lived together during the year.So, due to your self employment income(your SE income on Sch C increase your income on 1040 line 12, 22, and AGI), if your MAGI increase over $25K, then you need topay tax on your SSI beenfits. As long as your income reported on Sch C line 29/31 is $400 or exceeds $400, then you must file your return as a self employer; ALSO, as long as the amount on Sch SE line 4 is $400 or exceeds $400, then,you must pay self employment tax to the IRS; If you are filing as a sole proprietor, partner, S corp shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.If you are filing as a corporation you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.HOWEVER, You do not have to pay estimated tax for the current year if you had no tax liability for the prior year;y ou were a U.S. citizen or resident for the whole year;your prior tax year covered a 12 month period.





“ Is there an online calculator that would make this easy to calculate and get a good figure?”----->You can visit the website here; Self-Employment Taxes







“ Also how would charitable donations be figured in? (I donate $30 a month) “---->You can deduct your cash donations, $360, on Sch A of 1040 line 16 if you itemize yur deductions on yur return; you do not itemize your ded on Sch A, then you can’t deduct yur donations of $360. Since you make cash donations, the IRS requires you to keep some record of the donation in all circumstances For any contribution made in cash, regardless of the amount, you must maintain as a record of the contribution a bank record (such as a canceled check or credit card statement) or a written record from the charity.






“Are self employment taxes different from income taxes? I
heard they are 12.9% I believe and I wasn't sure if you are in the lowest tax bracket if you have to add that tax % to that one. (ie 15 to 12.9. Or is just 12.9% you would pay as a self employed person?)”----->Not 12.9% but 13.3%. You, as aSelf-employed person, sole proprietor , need to pay Social Security and Medicare tax through your self-employment taxas long as the amount on Sch SE line 4 is $400 or exceeds $400. Assume that your net biz income on Sch C line 29/31 is $10,000 then, you need to report $10K on Sch SE line 3 and multiply line 3 by 92.35% (.9235).So, $9,235 is reported o n line 4; multiply line 4 by 13.3% and report the result, $1228, on line 5 ,also multiply line 5 by 57.51% and report the result $706 on line 6 and on Form 1040, line 27.You can deduct $706 on 1040 to reduce your AGI on ;line 37 on 1040.



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Old 11-29-2012, 07:31 PM
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Thank you for such an excellent reply. It really helps although since I'm such a novice at this I'm still trying to understand. Thanks for your patience with me as I'm having a bit of a hard time grasping it all.

1. I'm single yes. I'm not taxed at all on my SSI income. So just to break it down you are saying this would change if I made at least $25,000 per year? I thought if I made that much I wouldn't need SSI and would just be paying taxes on my regular income. Are you saying I would be paying taxes on my SSI if I made at least that in a year?

2. Would a tax program like Turbo Tax simplify things for me so I could eliminate needing to go to a professional for my self employment taxes? Or would I still need to consult a professional. I have never done taxes before.

3. Are you saying that the total tax I would pay would be just 13.3% self employment tax period? And that I would not have to add in the income tax at all to make it 28.3%? I believe this is what you mean, but I just want to make sure I am understanding you correctly.

4. I give $360 per year and $30 per month regardless of what happens. If I only made $400 or so of income to claim on my taxes and the tax amount was really small would that deduction wipe out all my taxes to be paid for that year and go into the next year? (ie for instance $400 x .9235 =369.4 x 13.3%=$49.13 would that be an example of the taxable amount. I apologize for my math being so simple, but I am trying to get a better feel for how this is calculated)

Thanks for any help you can give. And thanks for your patience. I'm a newbie so I'm trying my best to learn.



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Old 11-29-2012, 10:59 PM
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“1. I'm single yes. I'm not taxed at all on my SSI income. So just to break it down you are saying this would change if I made at least $25,000 per year?”------>NOT your gross income. I mean as long as your PROVISIONAL INCOME(your MAGI; AGI+tax exempt income(if yu have) +50% of your SSI) is OVER $25K , then you NEED to pay tax on your SSI benefits;for example, assume that the amount on 1040 line 12 is $23K and 50% of your SSI is 3K( ASSUME that you annually receive SSI of $6K ) , then your MAGI is over $26K;$23K+$3K, you must pay tax on your SSSI of $6k.



“I thought if I made that much I wouldn't need SSI and would just be paying taxes on my regular income.”----> Correct



“ Are you saying I would be paying taxes on my SSI if I made at least that in a year?”----->Correct as described above.Whether or not you need to pay on your SSI benefits depends on your MAGI level (provisional income).



“2. Would a tax program like Turbo Tax simplify things for me so I could eliminate needing to go to a professional for my self employment taxes? Or would I still need to consult a professional. I have never done taxes before.”----->I guess you need some professional help on yur tax return from a tax pro in your local area for yur sate/fed returns UNLESS u are confident that you can accuarately file your return. You need to be able to find a venue to properly file your business taxes with if you happen to own a business. The venue can be very important to the taxpayer. A business owner needs to be able to properly file their business taxes because so many people are dependent upon that business succeeding. You need to be careful when you are filing your own tax return.

“3. Are you saying that the total tax I would pay would be just 13.3% self employment tax period?”---->No. 13.3% is SE tax plus reg income tax on your biz net income)READ BELOW CAREFULLY).The 2010 Tax Relief Act reduced the self-employment tax by 2% for self-employment income earned in calendar year 2011/2012. The self-employment tax rate for self-employment income earned in calendar year 2011/2012 is 13.3% (10.4% for Social Security and 2.9% for Medicare). The Temporary Payroll Tax Cut Continuation Act of 2011 extended the self-employment tax reduction of 2% for calendar year 2012 so the rates for 2011 remain in effect for 2012. For self-employment income earned in 2010, the self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).
“ And that I would not have to add in the income tax at all to make it 28.3%? I believe this is what you mean, but I just want to make sure I am understanding you correctly. “-As I said, as long as your income on SCh SE line 4 is $400 or exceeds $400, you musat pay SE tax,13.3% and yoy, as aSelf-employed person, sole proprietor , need to pay your own Social Security and Medicare tax through your self-employment tax. SO, Assume that your net biz income on Sch C line 29/31 is $10,000 then, you need to report $10K on Sch SE line 3 and multiply line 3 by 92.35% (.9235).So, $9,235 is reported o n line 4; multiply line 4 by 13.3% and report the result, $1228, on line 5 ,also multiply line 5 by 57.51% and report the result $706 on line 6 and on Form 1040, line 27.You can deduct $706 on 1040 to reduce your AGI on line 37 on 1040.You also need to report net biz income of $10K on 1040 line 12 to pay tax on your SE income. See what I mean?????

ALSO, as long as you are filing as a sole proprietor, partner, S corp shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.If you are filing as a corporation you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. Estimated tax payments are due by April 15th, June 15th, September 15th, and January 15th. Please note, even though estimated taxes are often referred to as quarterly payments, the deadlines are not three months apart from each other. If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year.
HOWEVER, You do not have to pay estimated tax for the current year if you had no tax liability for the prior year;y ou were a U.S. citizen or resident for the whole year;your prior tax year covered a 12 month period.


“4. I give $360 per year and $30 per month regardless of what happens. If I only made $400 or so of income to claim on my taxes and the tax amount was really small would that deduction wipe out all my taxes to be paid for that year and go into the next year? (ie for instance $400 x .9235 =369.4 x 13.3%=$49.13 would that be an example of the taxable amount. I apologize for my math being so simple, but I am trying to get a better feel for how this is calculated)”------->Then , due to lower self employment income, you do not need to file your return; you do not neeed to file SCh C/SCh SE;you do not need to pay your tax/SE tax or etc) As said previously, UNLESS the amoun ton Sch C line 29/31 is $400 or exceeds $400 you do not need to pay tax so you don’t need to file returns (state/fed returns).As you do not need to fiel your return you can’t deduct your donations on your return. You're only allowed to claim donations made in 2012 on your 2013return; if the receipt is date 2012 use it for 2012 taxes.However, if you make tax deductible donations to charities during the year, the IRS limits your ability to claim a deduction for all of them in a single tax year if your total deduction exceeds one of the three AGI limitations on charitable contributions. However, you can always carry over your excess charitable givings and deduct them on one of your next five tax returns
; UNLESS you file your return and itemize your dedcutions(including donations) on your 2012 return, then you can’t deduct it on your 2013 return.



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Old 12-02-2012, 03:48 PM
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Thank you for your information. It is helpful, however I must admit since I'm new to taxes I'm struggling to follow along a bit.

1. Do you file self employment taxes annually or quarterly. I thought someone said quarterly and then I thought I someone said annually. Is there a way to just file annually rather than quarterly?

2. How would I gather the information needed to file the taxes? What documents would I need? For instance would I need monthly printouts of my amazon payments from their site? Would I need a copy of my bank statements? Since it's online I wasn't quite sure how I would gather the information properly or what I would need. I know you said I would need receipts for my charitable donations.

3. Would my web hosting costs be deductable as well? If so how could gather the information needed to prove my costs?

Thanks for your help on this. I also appreciate your patience.



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Old 12-02-2012, 04:25 PM
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“1. Do you file self employment taxes annually or quarterly. I thought someone said quarterly and then I thought I someone said annually. Is there a way to just file annually rather than quarterly?”----->As described previously, as long as the AMOUNT on Sch SE line 4 is $400 or exceeds $400, then you must pay self employment tax to the IRS ANNUALLY. REMEMEBR: Self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for THEMSELVES (NOT EMPLOYEES). It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners, EMPLOYEES,OK???

if you are filing as a sole proprietor and/or a self-employed individual, you generally have to make ESTIMATED tax payments if you expect to owe tax of $1,000 or more when you file your return;HOWEVER, You do not have to pay estimated tax for the current year 2012 if you had no tax liability for the prior year 2011;you were a U.S. citizen or resident for the whole year 2011; your prior tax year covered a 12 month period. SO, if you are subject to tax on your self employed income on Sch C , you need to pay your estimated taxes quarterly. Estimated tax payments are due by April 15th, June 15th, September 15th, and January 15th. Please note, even though estimated taxes are often referred to as quarterly payments, the deadlines are not three months apart from each other.




“2. How would I gather the information needed to file the taxes? What documents would I need? For instance would I need monthly printouts of my amazon payments from their site? Would I need a copy of my bank statements? Since it's online I wasn't quite sure how I would gather the information properly or. ---->You basically NEED to report all of your online BIZ income and expenses on SCh C of 1040; You must report all income earned. It's a common misconception that if you don't earn over a certain amount or if you're just doing it as a hobby that it's not reportable or taxable. That's not true. All income is reportable from the first dollar earned. It doesn't matter if you receive a 1099 or not. It also doesn't matter if you earn less than a certain amount. Another myth is that if you earn less than $600 you don't have to report the income. Again, it's just not true.All income is reportable from the first dollar earned, unless it is specifically exempt from taxes in the tax code.However, you are allowed to deduct business expenses from your income, if they are reasonable and necessary to run your business. So in this case, just because you have to report the income doesn't mean you'll have to pay any taxes. If you have expenses that are as much as or greater than your income, you won't owe any taxes, and may even be able to use the resulting loss to reduce other taxable income.You can deduct Inventory ;eBay fees ; PayPal fees or shopping cart fees ;Shipping fees and supplies; Postage, bank charge or etc;you need to keep all copies/receipts/bank stmt for your return. Keepaccurate records of Internet usage if you plan to try and deduct the full cost of your Internet service. Always keep up with the sales tax laws in your state, as you will not be told when changes are in effect.




“what I would need. I know you said I would need receipts for my charitable donations”---->Correct; you can deduct your donations ONLY IF you itemize your deductions on SCh A of 1040;if you do not itemize your deductions on Sch A of 1040, then you CAN’T deduct your donations.







“3. Would my web hosting costs be deductable as well? If so how could gather the information needed to prove my costs?”----->Yes as said above. Your computer, if used for your online business exclusively, is a one-time tax deduction. Any business-related books you purchase, as well as any software products you buy strictly for business use, can be deductible. These types of products are all one-time deductions, in the year of purchase. Consider two phone lines and a dedicated space for your office. Use one of the phone lines strictly for business. Consider a computer and printer used strictly for your business as well, to ensure the cost of both are deductible. A portion of the fee for your Internet connection service can be deducted. This can be tricky. If your Internet service were used strictly for your online business, all of it would be deductible. Chances are good you use your Internet for something that isn't business related. Regardless of how little you use Internet service for something other than business, using it in this way stops you from deducting the full amount. In this case, you must figure out the percentage of time you use your Internet for something other than business and deduct that time. The time left that you use your Internet strictly for business is a deductible expense.



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