5 Tips For Self-Employed Taxpayers

When an individual works for themselves, he or she is considered self-employed for taxes, which means the individual is responsible for paying and filing taxes on a scheduled basis. These individuals will have some advantages and disadvantages at tax time.

Five Tips For Self-Employed Taxpayers

  1. A self-employed individual will have to pay income and self-employment tax. The self-employment tax includes Social Security and Medicare taxes. Normally these taxes are withheld from an individual’s wages, but a self-employed individual will have to pay these taxes by filing a Form 1040 Schedule SE. However, the individual does get to deduct half of this tax from his or her income on Form 1040.
  2. The earnings will need to be reported on a Schedule C or C-EZ Tax Form. This form will show whether an individual made money from a business or had a loss from the business. It will be used in addition to the Form 1040 and Schedule SE.
  3. Sometimes, a self-employed person will have to make estimated tax payments during the year. Even though some people work as an employee on other jobs with taxes withheld, it is still important to make these estimated taxes if an individual has any self-employed income. An underpayment of taxes at the end of the year could result in a penalty. Therefore, making quarterly estimated tax payments will save the individual from being penalized for underpaying.
  4. If an individual had business expenses, these will be listed and deducted from the Schedule C earnings. The expenses must have concurred during the current tax year to claim as a deduction. A business expense is one that is common and necessary for the operation of that business.
  5. Many common deductions can be overlooked, such as printing business cards and postage. Forgetting about a deduction can cause an individual to pay more taxes.

An independent contractor or sole proprietor of a business will have different tax obligations than an employee. For instance, the self-employed individual will pay more Social Security and Medicare taxes than an individual who is not self-employed. An employer will pay part of these two taxes for their employees, but a self-employed individual will be responsible for all of the taxes.

How to Estimate Self-Employment Payments

  • An individual can use the income tax return from the previous year to get an estimate for payments.
  • Look at the income and the self-employment taxes to figure the payments.
  • If this is the first year for self-employment, the taxes can be estimated based on the income that an individual plans to earn that year.
  • Adjustments can be made to the estimated payments after the first quarter if the estimate appears to be too low or too high.

Self-employed individuals need to file accurate tax returns with the proper deductions. Keeping good records throughout the year will ensure that no deduction is overlooked. At the end of the year, the taxes will be easier to file when the information is accessible along with estimated payments.

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Learn About Tax Liability

Tax liability can have you make wrong choices. However, the IRS has been helpful to some people in difficulties such as these. For example, the unemployed and people running small business will benefit from the ‘fresh start’ initiative. In fact, their installment agreement will ensure that there is easier and rational payments made.

Doug Shulman, the IRS commissioner stated that the agency has a duty to work with troubled taxpayers to meet their tax liabilities. Taxpayers have to understand the penalties against defaults arising out of failure to pay taxes on time. For example, 5% of unpaid taxes will be imposed against returns filed late on a monthly basis.

» The analysis for such failures is done at a lower limit of 0.5% and upper limit of 25% each month.

Therefore, if you are unemployed or self-employed, you will have about six months delay for you to pay your taxes. This will only apply to taxes due in 2011 and only if you had requested for an extension through IRS form 4868.

This form however does not excuse you from paying due taxes.

The initiative permits the delay to run up to 15th of October. You will need to show that you have been unemployed for more than 30 days continuously in 2011 or before the 17th of April 2012. Incase of self employment, show that your business earnings has dropped for more than 25% because of the economy.

Form 1127-A can be found at the IRS website: IRS.gov, should help you apply for the program and is due in April 17th.

You should be aware of a couple of things. For example, the earning and time limits that will accrue penalties.

Another thing to be aware about is the compounding interest payable on unpaid taxes.

If you do not have a financial statement then you should know that the threshold for the part payment has been increased by the agency. The fines are lowered, the interest will still be compounding.

In such cases, the IRS will increase the time for your part payment when you owe $50,000. The time can be increased to 72 months. This extended time can only be permitted if you consent to a monthly direct–debit payment.

This agreement can be set up online. To get an approval, you will need to have filed your returns and avail your personal details.

It is necessary that you file your tax returns even if you may accrue tax liability. Try not to make decisions that are irrational. Consult with the IRS through their websites and understand their conditions to qualify for the initiative.

Obama Believes That Taxes Help In Debt Reduction

President Obama believes that the U.S. can reduce its $15 trillion-plus federal debt by generating revenue from the increase in taxes.

While attending the Business Roundtable talks Obama stated that along with finding ways to cut spending, revenue had to also be dealt with. He believes that the people of America understand that this must be done in order to solve the country’s financial problems.

Taxes will be on everyone’s minds at election time.

The opponents of Obama- Mitt Romney, Ron Paul, Newt Gingrich and Rick Santorum, all are in opposition of increasing taxes. They argue that the creations of jobs and the economy’s growth will not benefit from the tax increases.

The GOP Republicans have led the way in White House budget crises by opposing any hikes in taxes.

No matter what the election outcome is in November, December is sure to bring any tax increase issues to the forefront.

The end of the year will bring to an end the tax cuts that were signed by then-President George W. Bush, along with the recently signed payroll tax cut.
Obama’s desire is to end the tax cuts signed by Bush for those individuals making a yearly income of more than $200,000. All the while he is pushing for a rule that would require at least 30 percent of a millionaire’s income to be paid in taxes.

Obama claims that his only desire is to create a balanced approach to reduce debt, not creating huge tax increases.

It is believed that the economy can be stabilized by making moderate tax adjustments, and by doing this, America can be back on top in the future.

How Education Tax Credits Can Beat High Education Costs

Many students are deterred from attending college, because of what they believe are insurmountably high education costs. It is important to know, however, that there are now two federal education tax credits can make the costs of higher education for yourself or your children a lot more affordable.  The names of the credits are the American Opportunity Credit and the Lifetime Learning Credit, and most students qualify for one or the other.

Qualification criteria are as follows: you must be paying your own postsecondary tuition and fees – or the fees that are incurred by your spouse or dependents. Either the parent or a student can claim the credit, but not both at once. In the case of a student who  was claimed as a dependent, it’s the parent who must file for the credit.

Each student is allowed to claim only one of the two available credits in any given tax year. For example, you are not allowed to claim the American Opportunity Credit to pay a portion of your tuition charges, and use the Lifetime Learning Credit to cover the rest of the expenses.

Federal policies do allow for parents to take credit on a per-student, per-year basis; this means that if you are paying tuition for two students in your family, you can claim a credit for each individual who is in school. It is possible that if a family claims two students, one will have the Lifetime Learning Credit while the other uses the American Opportunity Grant.

The American Opportunity Credit can be used to cover up to $2,500 in eligible expenses, per student, with up to forty percent of that refundable, which will decrease tax owed, or increase a family’s refund. The Lifetime Learning Credit, in contrast, is also worth $2,000 but the credit that it offers is limited to the amount of tax you owe, so you will not receive a tax refund.

If you, or someone in your family is considering postsecondary education, be sure to investigate how these two programs may benefit your student.

Proposed Changes From Taxes

The current administration’s proposed budget for 2013 includes some items from 2012 taxes with a wish list of ideas added. Although Congress isn’t obligated to accept all items on the list, in the past, it has accepted some of the ones proposed. Since the U.S. tax code has not had a major overhaul in more than two decades, some analysts expect public debates on everything from tax brackets to tax return filing.

Some of the proposed budget includes changes from 2012 taxes, including individual taxes, corporate taxes, international provisions, and manufacturing tax breaks. Although there are others, the ones listed are the most significant to the average American individual and American corporations. These plans are to be gradually integrated into the budget over the next decade.

Changes to individual 2012 taxes include cutting payroll taxes and gradually ending the tax cuts from the Bush administration. Other individual tax changes proposed include carried interest, the Buffet Rule for millionaires, and an itemized tax cap for those making more than $200,000 per year or families with incomes over $250,000. Some of the changes take place during the current year, so tax return filing may be more challenging. Taxpayers need to have up-to-date information before filing their 2012 taxes.

The administration would like to drop the 35 percent currently charged to corporations down to the upper 20 percent tax range. The United States now has one of the highest corporate tax rates in the world. Although this won’t change tax return filing for individuals, the change will lower what corporations pay from the 2012 taxes.

There are other changes from 2012 taxes that will affect tax return filing for American corporations. These include the administration’s proposal to close a loophole in sheltering overseas intangible property profits, moving expense deductions for companies that move their overseas operations back to the United States, adding a minimum tax on profits from overseas, and restricting tax deferrals from other countries.

Some of the proposed changes may affect 2012 taxes. Seek professional assistance from the IRS, a CPA, or tax return filing professional. If you choose to calculate your own taxes, update your software and research the most current tax codes before filing.

Taxes, Santorum, Part Of The Solution Or Part Of The Problem

The Republican candidate Rick Santorum has a tax plan that would cut taxes, for Americans, but increase the budget deficit by nine-hundred billion in a year. This was reflected in a recent study. The more the deficit increases, the less the American dollars is worth. His plan is a short term fix, with no long term benefits.

The taxes 2012 Santorum plan would create a substantial tax cut of approximately seven-thousand and eight-hundred dollars for about sixty-nine percent of Americans. The problem with his proposal is that the households, which would benefit the most, are the richest ones in the … Read the rest

The Republican candidate Rick Santorum has a tax plan that would cut taxes, for Americans, but increase the budget deficit by nine-hundred billion in a year. This was reflected in a recent study. The more the deficit increases, the less the American dollars is worth. His plan is a short term fix, with no long term benefits.

The taxes 2012 Santorum plan would create a substantial tax cut of approximately seven-thousand and eight-hundred dollars for about sixty-nine percent of Americans. The problem with his proposal is that the households, which would benefit the most, are the richest ones in the country. Individuals, who make more than one-million a year, might receive a tax cut package of approximately four-hundred and forty-two, thousand dollars. Most households with an income of fifty-thousand to seventy-five thousand would receive about two-thousand and sixty-two dollars.

Santorum’s tax cuts are extremely beneficial to corporations, by cutting their taxes in half. Corporation that now pay thirty-five percent in taxes, would only pay around seventeen percent. The wealthy would get a lower tax rate on their investment income from fifteen percent to twelve percent. He would get rid of the marriage tax penalties and increase aid for dependent children. Single parent families would conversely receive tax increases. However, none of these tax changes would be fully established until 1215.

Rick Santorum’s budget will increase the deficit, benefit corporations, and the wealthy. It is time to stop writing checks on an empty account. The last thing this country needs is another short-sighted economic agenda.