Tax Returns

[Blackcat31]

Tom

I recently read a statement saying "Everybody who is self employed should get a tax return, just some may be larger than others.

There is no reason a person should just break even.

There are so many tax breaks, credits, and deductions available to a home based self employed person. It all comes down to knowledge, experience and time on the job."

Can you elaborate on that at all? Do most self-employed people get a refund? I was under the understanding you had to pay taxes in to get a refund. If a provider doesn't pay quarterly and prepares their taxes at the end of the year, will they always get a refund?

[daycare]

ugh.....I have paid taxes every year except the first two years I did daycare...... when is his web class again??.

[spud912]

We get a return, but it's for three primary reasons: 1) My husband contributes to taxes and we file together. 2) My gross income was $23,000 and final income after taxes was $5000 ... and 3) We qualify for earned income credit (basically meaning that we are poor ).

I have read (and it is true for us this year), that you can get more of a tax return than what you paid into the government if your annual income is low enough. Let's say hypothetically your gross income is $40,000 and you paid in 4K out of your paycheck with 4 deductions (2 adults and 2 qualifying children). Then you get a tax return of 5k, which means that the government (or more accurately, wealthier tax payers) paid you $1000 just to exist and be fairly poor. I don't agree with it (because it's money that was not earned), but unfortunately that's how it's set up.

[daycare]

Ugh so in order to qualify you have to have made Less that 40k??

Bummer looks like we pay again.

[spud912]

Ugh so in order to qualify you have to have made Less that 40k??

Bummer looks like we pay again.

Not necessarily. I was giving an example above .

It depends on how much was withheld from your spouse's income and/or how much you paid quarterly. If the federal government received more than what you owe (as in you had more withdrawn or paid than is necessary according to your tax bracket), then you would receive a refund. For example (and this is totally hypothetical because I have no idea what the actual tax brackets are based on income), let's say your combined household income was $100,000 last year ($80K salary for your dh and $20k for you after deductions) and your husband had $35,000 withheld from his paycheck. Well, let's say the government denotes that an income of $100k puts you in the tax bracket of 30%, then your household would owe 30% of $100k, which would be $30k. Basically that would mean that you over-paid by 5K and would receive that as a refund.

What I was talking about in my response was earned income credit (EIC). We are in a tax bracket of approximately -2.5% (yes, negative 2.5% because we actually made money on taxes beyond what we paid in). In order to qualify for EIC, you have to meet a certain income criteria. In our case, a family of 4 with 2 qualifying children must make less than $47,000 per year. After all of the deductions, EIC and child tax credit for both of our children, we profited off of taxes. Now our tax refund is greater because money was withheld from my dh's paychecks, so we get what he put in plus ~$1000 extra.

[daycare]

Aaahh I see.. Well last year I paid $17k in taxes. I'm scared for this year cause my husband worked in his field of medicine Full pay for the first time in 2012.....

I've never paid quarterly taxes. Ugh.

[itlw8]

Aaahh I see.. Well last year I paid $17k in taxes. I'm scared for this year cause my husband worked in his field of medicine Full pay for the first time in 2012.....

I've never paid quarterly taxes. Ugh.

surely that is wrong. if you paid that much taxes why the heck are you working? Cost of living must be VERY HIGH there.

[Unregistered]

surely that is wrong. if you paid that much taxes why the heck are you working? Cost of living must be VERY HIGH there.

I reside in CA as well, and this seems to be about right. The amount you pay in taxes varies for everyone depending upon how much money you make. I make a good amount of money doing daycare and my husband works two jobs outside the home. Even with taxes being taken out on his income and all of my allowable deductions we pay roughly 14-16,000/more in ES taxes.

It just all depends on your income and tax bracket.

[daycare]

surely that is wrong. if you paid that much taxes why the heck are you working? Cost of living must be VERY HIGH there.

I live in the SF bay area. min wage here is $10.00 or $10.25. sales tax is 8.75

my husband does make good money, so he is most of the reason why....well that was before he lost his job... I don't do great so to speak with the daycare money wise, but I dont do horrible

[TomCopeland]

Taxes

Not necessarily. I was giving an example above .

It depends on how much was withheld from your spouse's income and/or how much you paid quarterly. If the federal government received more than what you owe (as in you had more withdrawn or paid than is necessary according to your tax bracket), then you would receive a refund. For example (and this is totally hypothetical because I have no idea what the actual tax brackets are based on income), let's say your combined household income was $100,000 last year ($80K salary for your dh and $20k for you after deductions) and your husband had $35,000 withheld from his paycheck. Well, let's say the government denotes that an income of $100k puts you in the tax bracket of 30%, then your household would owe 30% of $100k, which would be $30k. Basically that would mean that you over-paid by 5K and would receive that as a refund.

What I was talking about in my response was earned income credit (EIC). We are in a tax bracket of approximately -2.5% (yes, negative 2.5% because we actually made money on taxes beyond what we paid in). In order to qualify for EIC, you have to meet a certain income criteria. In our case, a family of 4 with 2 qualifying children must make less than $47,000 per year. After all of the deductions, EIC and child tax credit for both of our children, we profited off of taxes. Now our tax refund is greater because money was withheld from my dh's paychecks, so we get what he put in plus ~$1000 extra.

One note: If you had $100,000 of income and were in the 25% tax bracket (there is no 30% tax bracket), you would not pay $25,000 in taxes. If you are married and filing jointly, the first $17,400 of the income would be taxed at 10%; the next $53,300 would be taxed at 15%; the last $29,300 would be taxed at 25%.

[TomCopeland]

Taxes

Tom

I recently read a statement saying "Everybody who is self employed should get a tax return, just some may be larger than others.

There is no reason a person should just break even.

There are so many tax breaks, credits, and deductions available to a home based self employed person. It all comes down to knowledge, experience and time on the job."

Can you elaborate on that at all? Do most self-employed people get a refund? I was under the understanding you had to pay taxes in to get a refund. If a provider doesn't pay quarterly and prepares their taxes at the end of the year, will they always get a refund?

I do not believe that everyone who is self employed should be getting a tax refund. The only way you can get a refund, without having to pay in any taxes, is to qualify for the earned income credit. But, even with this credit, you would still owe Social Security/Medicare taxes on your profit.

If this statement is meant to say that everyone should break even (expenses are equal to income) who is self employed and working out of their home, I disagree with that as well. Yes, everyone should take advantage of all allowable business deductions. But, no way should everyone be able to write off all their income.

[Blackcat31]

I do not believe that everyone who is self employed should be getting a tax refund. The only way you can get a refund, without having to pay in any taxes, is to qualify for the earned income credit. But, even with this credit, you would still owe Social Security/Medicare taxes on your profit.

If this statement is meant to say that everyone should break even (expenses are equal to income) who is self employed and working out of their home, I disagree with that as well. Yes, everyone should take advantage of all allowable business deductions. But, no way should everyone be able to write off all their income.

Thank you I knew that statement sounded off

[spud912]

One note: If you had $100,000 of income and were in the 25% tax bracket (there is no 30% tax bracket), you would not pay $25,000 in taxes. If you are married and filing jointly, the first $17,400 of the income would be taxed at 10%; the next $53,300 would be taxed at 15%; the last $29,300 would be taxed at 25%.

Thank you so much for clarifying. I was always curious about how tax brackets work . We had our taxes prepared for us. I was amazed to see we can make more than what we paid in so I looked it up. Surprisingly it happens fairly frequently.

[itlw8]

If I remember correctly at a training Tom you said something about why work if you won't make a profit. And not to buy something just to get a tax deduction.

profit is good.

[suehelen]

That's one thing that has always bothered me about my accountant. She did a good job, but would have a heart attack if I showed a profit. There were several years I took a loss and several more where I just barely broke even. I paid in very little self employment tax so I have very few credits with social security. If something happened to me, I don't even qualify for disability payments.

Profit IS good.