Maximizing Tax Benefits: Tips for Small Income Earners in the PC Industry

[jesusluvsu2005]

Hi everyone! We have a small income and I just started doing PC. We don't owe any taxes on our income right now. This past year we got back 400 and that's without owing any taxes. We could go up at least another 10k or so before we'd have to pay any taxes. Will keeping track of my expenses help me any? Say I make $8000 this year with PC. We still would owe no taxes due to our income. If I had write off's would we get back more even though we wouldn't owe any? Did I confuse anyone already? I'm having a hard time remembering to write down mileage, etc. So I am curious if since our income is low if it will even affect us. Thanks!
God bless,
Amanda

 

[trps]

Because we are independent you will be paying into your own social security (instead of your boss) that means the more you make the more you will pay in taxes. You are taxed at a higher rate for your PC income than at a job. So the more you deduct from your PC income the less you will pay into your social security tax.

Hope that helps.

 

[jesusluvsu2005]

So is that (social security) something else we file or something in addition to the income tax return or is it taken care of all in one? Sorry, I am a dunce when it comes to taxes. I just don't want to owe anything. Thanks!
God bless,
Amanda

 

[trps]

You pay it when you pay taxes you probably don't know it is usually called self employment tax but that is what it comes to you have to pay your regular tax (based on income) then you pay self employment tax which is for Social security and I believe it is 30% but at a regular job the boss pays this part you just pay the income tax.

 

[lkprescott]

Hi everyone! We have a small income and I just started doing PC. We don't owe any taxes on our income right now. This past year we got back 400 and that's without owing any taxes. We could go up at least another 10k or so before we'd have to pay any taxes. Will keeping track of my expenses help me any? Say I make $8000 this year with PC. We still would owe no taxes due to our income. If I had write off's would we get back more even though we wouldn't owe any? Did I confuse anyone already? I'm having a hard time remembering to write down mileage, etc. So I am curious if since our income is low if it will even affect us. Thanks!
God bless,
Amanda

Normally an employer withholds Federal Income Tax (FIT) and FICA (which is the social security portion). FIT is a charted or mathematically derived number and FICA is a 'flat tax'. It's like 15.3% or some such. Normally your employer withholds half and matches the other half as an expense to their reports. As a self employed person you pay the whole enchilada.
http://www.irs.gov/businesses/small/article/0,,id=98846,00.html

Now, what you'll be taxed on though is your net income which is your commission (including non-cash remuneration like PC$) less your expenses. I track throughout the year (was a bookkeeper for 9 years prior so it's just a natural for me) and run reports every month to see where I'm at loss/gain wise. Keeping track of all expenses is vital though and doing it as it happens is easiest. Even if you don't make a lot in a year, if you have a loss for your business you'll be able to post that on your taxes... it's always a good idea to track all income and expenses.

Another thing to remember, is not only federal taxes but also state and local if you have those in your area. You may want to find out (should be online) how to pay in estimated taxes for them as well so you're not caught owing at the end too, especially if you run a positive net income throughout the year. Some states, in fact, will penalize you if you don't do submit enough estimated taxes in throughout the year. Do some research on the IRS.gov site and on your state's revenue department website to get the answers now. You're wise to research this before the end of the year when most folks panic. LOL... also, remember a consult with a CPA in your area will be the final word when it comes to your particulars. This year we had about $500 in a federal refund but owed a bit more than that to the state and local tax offices... I must do better this year. LOL

 

[jesusluvsu2005]

Thanks so much! I got a bit worried yesterday so I ran our income through the hr block calculator. It's always been right for me in the past. Anyway, it showed that if I made 10,000 (don't know that I'll earn that much but I'd rather over estimate) I would owe a little over $1000 in self emplyment tax. So it would basically deduct that amount from our refund. So we wouldn't "owe" anything as it would be deducted from our refund. I realize we'd still be losing money that we could have, which I definitely don't want to do. However, I was scared we'd actually have to pay in a bunch out of our own pocket rather than out of our refund. I will have to get better at keeping track of expenses. Don't want to lose that part of my refund. Thanks guys!! I appreciate it!
God bless,
Amanda

 

[lkprescott]

Thanks so much! I got a bit worried yesterday so I ran our income through the hr block calculator. It's always been right for me in the past. Anyway, it showed that if I made 10,000 (don't know that I'll earn that much but I'd rather over estimate) I would owe a little over $1000 in self emplyment tax. So it would basically deduct that amount from our refund. So we wouldn't "owe" anything as it would be deducted from our refund. I realize we'd still be losing money that we could have, which I definitely don't want to do. However, I was scared we'd actually have to pay in a bunch out of our own pocket rather than out of our refund. I will have to get better at keeping track of expenses. Don't want to lose that part of my refund. Thanks guys!! I appreciate it!
God bless,
Amanda

Get obsessive with the expenses. Take your calendar with you everywhere and write it right on the date, that way you can remember what show it went to and the mileage is right there and this year the mileage is a BIG write off (.505 cents per mile) only bound to get bigger each successive year that gas increases the way it has too. It can end up being one of your biggest expenses at the end of the year! Others are easy so long as you keep your receipts. If you take a possible recruit out to lunch or coffee, get a receipt... it adds up fast! Though meals/entertainment is only 50% deductible. It's at least something! LOL