tax tips or resources for the self employed?

[floyd]

does anyone here who is self employed have any good tips, resources, book suggestions?

[Birdsnest]

You just about have to do quarterly taxes if you are self employed. Here are the forms you need for each type of business:
http://www.irs.gov/businesses/small/article/0,,id=98191,00.html
If you don't do estimated taxes, then the payment at tax time will be huge. You can also get Turbo Tax online at www.intuit.com (http://www.intuit.com/) (look for the free business samples too at http://tinyurl.com/5rnv8 ) or just pick up Turbo tax at Walmart when Tax season starts. That program will guide you through everything step by step. If you have vehicles, computers or equipment that you purchased for the business specifically, you can depreciate them, but have to keep records on them, receipts, etc, and stick with whichever method you use to depreciate each year. If you had to take courses that relate to your job, you can also claim the costs on your schedule C. You need to have a good recordkeeping system and a Tax ID Number (TIN). There are downloadable forms and information at www.irs.gov (http://www.irs.gov/) .

http://www.irs.gov/businesses/small/index.html
http://www.irs.gov/businesses/small/article/0,,id=98808,00.html

This is for people being paid by 1099:
Beware of employers that pay their employees cash, and report earnings on a 1099, the employee is really in for a surprise, the amount they owe is enough to cry over. NEVER let your employer pay you on a 1099.

[athman]

Floyd, what country are you from and what do you do? It depends a lot on the tax regime.

The trick, at least where I come from, is to make as many expenses deductable as you can. Think of all the things you'd like to have that can be related to business use, for me that includes computers, books, travel, car, further study, etc - which is quite broad. They become things you no longer need to pay for out of after-tax income.

Its a balancing act, don't go overboard and buy stuff just cos its tax decuctible,

[floyd]

thanks birdnest, if i did not make any money last year (2003), can i pay taxes all at once for 2004 on apr 15, at this point i am a little late to do quarterly payments?

i am in the united states. it looks like the c-ez form is a max of $5000 for expenses, which i probably have not, won't go over.

[int]

This is for people being paid by 1099:
Beware of employers that pay their employees cash, and report earnings on a 1099, the employee is really in for a surprise, the amount they owe is enough to cry over. NEVER let your employer pay you on a 1099.


Can you elaborate?

I only did a one day job on a 1099 this year but am curious nonetheless.

[SheepDog]

I've gotten a 1099 which meant the employer didn't pay or withhold the social security tax that a W-2 would have required. That means I was stuck with the extra 6(ish)% for the employer portion plus the 6(ish)% for the employee portion. If you're not expecting it, that extra 12(is)% can ruin your day. Oh, yeah, don't forget the regular marginal tax rate. This ends up being a roughly 40% kick in the ass.

[Johnny]

Make copies of every financial transaction related to your business, save every receipt, document everything in Quickbooks or some other accounting software program, save half of every penny you earn...hire an accountant to make sense of everything for you...

[Spartan26]

You can also get Turbo Tax online at www.intuit.com (http://www.intuit.com/) (look for the free business samples too at http://tinyurl.com/5rnv8 ) or just pick up Turbo tax at Walmart when Tax season starts. That program will guide you through everything step by step. If you have vehicles, computers or equipment that you purchased for the business specifically, you can depreciate them, but have to keep records on them, receipts, etc, and stick with whichever method you use to depreciate each year.

I reccommend Turbo Tax. It'll ask you questions about your business and then fill in the blanks.

Depending on you business and what you made last year, you might not be hurting for not paying your quarterly taxes, as far as any penalty. Say you are a private contractor making toys for Santa. You may work from Jan-Nov but not see any income until December, in which case you can adj your quarterly pymnt to be big for the quarter you garner the most income.

Before I go any further I should stress that I'm not an accountant, certified, or an expert in tax preparations. I don't want you whining to the IRS, "Well Spartan said I could do this," because, a). I probably didn't. b). I'm not going in to the IRS to represent you and c). I don't want you saying anything that'll prompt the IRS to audit me.

Before he retired my father was an accountant. His long-standing advice to people would be, "when in doubt, pay the extra taxes." It's never worth having to look over your shoulder or face an audit on shakey terms. And nothing runs away clients faster than your assistant yelling out, "IRS on line one!"

That said, or written, IRS agents are quite helpful when you call them for information. I don't have the number but any general 800-number during regular business hours, like in the mid afternoon when they're not so busy, you can call and they'll give you great information. I'd reccommend having 3-4 questions ready about your business or situation because once you get them talking and they can see what you're doing they'll probably give you some extra things that you wouldn't have thought of.

Birdsnest already mentioned depreciating items and a lot of professional fees that many people don't deduct. It really depends on what kind of business you're in. Generally, an item should be used solely for your business to be deducted. If you're in some type of financial services, getting a Bloomberg subscription would be something you can write off. But writing off cable TV so you can watch CNBC will probably be rejected because the other 89 channels that can be entertaining to watch. Or, say you're a musician, if you want to write off what you wear on stage then your outfit better look like you fell off the back of the Chiquita Banana boat because the 4K Armani will be shot down. One big thing, be careful of the home office deduction.

If you can't explain a deduction within a couple of sentences, I wouldn't take it, no matter how much you try to rationalize it. Get in the habbit of getting a receipt everywhere you go and scribbling some information on it. You do have 36 hours, I believe, from an event until the actual time you have to talk turkey. So say you go with some clients to dinner theatre on Saturday night, if you meet with them Monday you can still claim that event.

Personally, I don't know how elaborate your records really have to be so long as they're clear and accurate. I also send in worksheets and legends and photocopies of receipts (if I have access to a copier). I have no idea how closely they look at them, but like in high school math class, show your work.

Generally, on the receipt itself I'll write the date & amount, if they're not on there and it's not a reciept that'll fade, and then I'll jot down the names of the people I met with and a quick title of the project I'm working on. So on my Red Lobster receipt I'll have Bob, Jeff, 11/11 $25 Space Flame. Then somewhere I'll include that Bob is a DP, Jeff does sound and Space Flame is a script about aliens coming to earth as giant candles. A lot of people and expenses come up more than once so why not make things easier? Plus if they see what you're doing, like a movie about giant candles, the $1300 expense from Pier One isn't going to set off their alarm.

Just having some records of what you're doing and not have it look like you've gone, 'OK, I have $400 to pay taxes, how can I make these numbers work?' may save you any undue distress.

[floyd]

well, it seems the conservative thing to do then would be to pay q1,q2,q3 on jan 15, and q4 on apr 15. the tax code is really biased to Js, while i will itemize the big stuff, anything that turns into habitual itemization i might avoid.

[Birdsnest]

Quick answers: For INT, if you only did a day or two it shouldn't be bad, and if you earned income on W2's as well, you may not even owe. I wouldn't worry about it if its just a few days or even a month, its more when you've worked 7 months or more, for example if you were a fisherman on someones boat for instance, being paid all year on a 1099 with low wages and nothing saved then the amount due will be substantial and take someone by surprise.

For Floyd, it depends on how much is due. If you had losses, or expenses, just report those against earnings. Less penalties if you owe less, and maybe even no penalties if its a small amount of taxes due. But if its a large amount due, there could be penalties. So, save those receipts for everything you do related to the business. I think its hard to advise without actually knowing all the details, except that if you feel better about going to a tax accountant than doing it yourself, that is another option. They will go by how much is due, and recommend quarterly if its a large amount.

Call the IRS and ask them to mail you Publication 334 and the ones on depreciation and new small businesses and the request for a Tax ID number. Then study the depreciation types you can use for vehicles and decide whether you want to use mileage & expenses on car repair, OR depreciation, you can only take one or the other.