OK, I am such a noob with taxes. I am a U.S. citizen, what form do I fill out for income earned online? I guess the forms are to be mailed in every April? So if I made money online from January-April 09, am I to pay those taxes by April 2010? I have no idea how it works, they never teach this crap in school, so if someone could please explain .
I'm in the same situation as you, but I feel I must comment that it is bull crap that they don't teach us how to file taxes in school.
If you earn income from a business such as Google Adsense, Amazon, etc, you will get a 1099 from them in January or February. This all goes on your standard tax form, typically 1040. If in doubt, visit irs.gov now and start reading up or visit your local accountant.
Yeah, no kidding. My dad helped me file my taxes, didn't have two clues how to do it. Are you a proprietor or operate under a corporation? Not sure about the US but in Canada we have to file the regular income tax form for "self-employed" income and a special one for corporate. I think in the states it's called General someone or other but in Canada it's a T-4. If you make lots of money it's a good idea to hire an accountant or person who can do that for you the correct way. If all else fails just Google it hehe.
So, in general, that mid-April tax deadline for all U.S. citizens is for all income earned in the previous year? But what constitutes the previous year? Is it the actual year (Jan-Dec 2008) or is it April 07-April 08? I just don't get that part.
It's January - December for the previous year in most cases, including yours. So yes, the April 15th, 2010 deadline is for you to pay taxes on all income received from January 1st - December 31st, 2009. I hope that helps.
You have to pay those taxes on a quarterly basis. For about 75.00 you can have a local bookkeeper set you up. Not paying quarterly will cause you to pay a penalty to the IRS. Find a local bookkeeper and have them set you up once and you will be fine.
I am a registered tax preparer in the state of california so I can answer many of your questions. First off, all income is taxable (with a few exceptions). Any earnings from google adsense, YPN, amazon etc is all considered self-employed income and hence subject to SE tax. If the net income is below 400$, you don't have to pay any SE tax. If above, you must pay the SE of 15.3% Up to total income of 106,800. After that, you don't have to pay SE tax anymore. Lets take for example a person who is making 1k/month from google adsense from his blogs. This person would report income of 12,000 on line 21 of the 1040. This 12k gets added into total income and then gets thrown in when you do the total tax calculation (ie. its subject to standard income tax rates, regardless of how much you make). That 12k, is also subject to the 15.3% SE tax as well as long as the persons income is below 106,800. Any amount above 106,800 = no SE tax. Now to figure out your total SE tax, use Schedule SE Fill out that form. It factors in business income, self-employed income, wage income, social security and so on to prevent you from overpaying into social security/medicare. If you owe SE tax, you can also deduct 50% of the total SE tax as a deduction (line 27, 1040). Now moving on to quarterly payments. Yes, you are REQUIRED to pay quarterly payments if you have self employed income. This is because the tax system is a pay as earn the income. If you owe more than 1k in total tax on april 15th, you will be subject to penalties. So its important to pay your tax. You pay online: https://www.eftps.gov/eftps/
Are you saying that I have to make payments at the end of each quarter in a year? Even if I made $25 per quarter?
I am an accountant also. I think what you really need to do is find a local tax preparer, accountant, CPA, or Enrolled Agent in your area. Now would be a good time as tax season will not start until mid January. Find one that is willing to answer and discuss your questions with you. I try to educate my clients not just say "sign here". Many tax advisors will offer a free consultations. I do. On your question about quarterly payments, if you expect to owe more than $1,000 in tax then you must do estimated tax payments. That is tax owed not "make" as in the money earned.
Self-employment taxes are definitely confusing. You're supposed to pay quarterly taxes based on what you estimate you'll make the entire year. For example, if you estimate you'll earn $30,000 during the year, your estimated taxes might be $5,700. In that case, you'll send $1,425 to the IRS every quarter. If you don't pay your estimated taxes, you may face a penalty from the IRS. Last time I checked, the penalty was 4% of what you should have paid. If you're still working for an employer who withholds money from your checks, you can use IRS Form W-4 to have your employer take more money out of your pay. That way, you don't have to worry about paying the quarterly taxes and if you have enough money withheld, you won't be penalized. When you file your income tax, you'll need to use a Schedule C to report income made from your business.
So the estimated quarterly tax -- I pay whatever the difference is at the end of the year? Like if I over-estimated how much I would be making then I pay less and if I underestimated than I pay more?
This is why I incorporated myself as an LLC. I can file my company's taxes with my personal taxes and No SE tax. I only pay a $250 yearly fee, and the normal state/local taxes which saves me about 10%.
If you make only $25 every few months than I wouldn't worry about estimated taxes. Like InternetBullDawg said, if you expect to owe more than $1,000 in taxes for the tax year then you have to make quaterly payments. Also the IRS has a special deadline for quarterly estimate payments. The first payment is due on April 15, the second on June 15, then September 15, and last is January 15. Depending on which state you live in you may also have to make quarterly payments to your state as well. If you make a lot of money then you should definitely see an accountant. If you only make a few hundred or a thousand a year then you can file the taxes yourself using something like Turbo Tax.
Actually you are still suppose to be paying SE Tax. Even if you incorporate yourself as an LLC. Long explanation here: When you have your business as an LLC you have three options. One is to continue filing as a sole proprietorship on Schedule C of your personal tax return. You pay SE Tax, Fed, State tax. Two is to elect to for the LLC to be treated as an Sub Chapter S Corporation. Form 1120S is filed separately from personal but net income is reported on your personal return. Fed & State tax is paid on the net income on personal return. SE tax is paid by salaries owners and members are suppose to take. Third is filing as a partnership if there is more than two members in the LLC. Partnership net income is reported on personal return and that member's portion is taxed on SE Tax, Fed, State. Whichever way you choose you will still have to pay Self Employment tax. If the LLC is filing as a S-Corporation then the member or members are suppose to receive a salary and pay SE tax. It is called Social Security and Medicare on the W-2 but it is still the same. I could go on explaining but I just don't want people to think they don't have to pay SE tax. You can do tax planning to limit the exposure to how much tax but in the end you still have to pay. I know it can be very confusing. Dan (with the above being said I will put the below) IRS Circular 230 Disclosure: Unless expressly stated otherwise in this transmission, any tax advice contained herein, forwarded with or attached to this message was not and is not intended to be used, nor may it be relied upon or used, by any taxpayer for the purpose of (1) the avoidance of any tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any tax transaction or tax-related matters that may be addressed herein.
Everyone has given great advice, however I will just state what I use: Local Universities/Colleges. If you have ever been enrolled with some school, use them. If not ask a friend who attends a U. or college near you! Ask the business professors, TAs, grad students, etc. -- you will be amazed as to how willing and giving they are! I have been blessed to have the right network that I can have all my financial/tax Q's answered. I suggest the same to you, and hope it works wonders!
Quarterly taxes are a PAIN in the A**! I use FORM 1040 EZ here in Michigan and pay more federal than anything. Luckily, I will be getting a lot back. Anyone know how to adjust it during the year?