I a few tax questions regarding my online business. Let's say, for example, I spend $2,000 on Adwords campaigns and make $5,000 off that. Am I going to be taxed on the $2,000 or on the $5,000? Also, if I am filing self employment taxes, and that is the only income I have had this year (self-employment), than is there a need for me to file regular state and federal income tax? If I do file it, will I get taxed for both self employment AND state AND federal? It wouldn't seem to make sense if that is the case.
You get taxed on revenue less business expenses. You report both the $5,000 revenue and the $2,000 expenses - and get taxed on the remaining $3,000 profit.
You mean that you spend $2000 and $5000 came in, leaving you with a profit of $3000? You declare the $5000 as income and the $2000 as business expense, and at the end of the day your tax is calculated on $3000 profit. The self-employment tax is filed on schedule SE which is part of the 1040. You also pay federal income tax, though it is reduced to account for the self-employment tax (there's a spot for that on the 1040). And you also pay state tax. If you were working for someone else (i.e., a regular job), then you would be paying 7% FICA and your employer would be doing the same, adding up to the same as the 15% self-employment tax you are paying now. Hopefully it makes more sense when you look at it that way. For $30 or so you can do all this in TurboTax, which will save a lot of time and answer most of your questions along the way.
I think the post office has 1040 instruction manuals. If not, call the IRS and have them send it to you. ... or you can just download the 2009 1040 .pdf from IRS.gov and work your way through it, downloading the referenced forms and their worksheets as necessary. Just fill all of these out with a pencil as a rough draft. The 1040 manual is also online.
Anyone filing a 1040 can submit a schedule C for a business income. You don't have to be a "small business." But yes, they charge more if you need all the forms. I think I did pay about $70 to file all forms. If you have some business income, you will need the schedule c and the self employment tax. Check the prices. See if you can file a 1040, along with all the forms for less than $70. A small business owner would still need to file a 1040. Just check which is the cheapest package for 1040, plus all forms like schedule C, itemized deducations, self employment, etc. I use turbo because it beats hand written chicken scratch and a calculator. I'll never go back. Stephen C
How much easier is turbo tax than going to see a tax specialist? I am a complete noob when it comes to taxes so I am considering having someone do it for me.
A tax specialist will probably take all your info and type it in to a turbotax-like program. And they will charge you double or even triple. And...the kicker...they will claim they can get you a larger refund. The bottom line is, you can't make up stuff and turbotax does a great job of weeding out all deductions that are fair game for you. Although I have seen some charge about the same as turbotax, but you won't get them to do it right away. It's really your choice. Some people don't mind typing stuff in, some do. I think from my experience, if you have never had any trouble doing taxes by hand in the past, you will have no problem doing turbotax. But, many of my friends are scared to death for some reason of doing taxes. So, they give it to someone else. It really is just a matter of following directions and typing stuff in correctly. Sometimes a tax person is the right choice, especially if you get a good deal and you can't stand doing taxes. But do not let them allow you to fudge things. A good tax person will just ask the right questions. If they say, "Let's claim this and see if it goes..." stay away from them. They need to ask you honest questions and get honest answers. It probably takes me a days work to type everything in. I do a 1040, schedule A, schedule C, self-employment tax, a few 1099's, student loan interest, etc. Plus, adding up my paypal stuff takes a while. If that sounds like a lot of work, no problem with outsourcing it, just beware of the cost. Stephen C
It's the initial visit with tax specialists that costs you. In subsequent years your situation becomes routine and they don't have to spend as much time with you.