Tag Archives: taxes

How to Afford My Quarterly Taxes

I assume that I’m going to owe $6132 in quarterly taxes (state and federal) in… 14 days.

(AHH!)

I just transfered an extra $1000 into my ING for Taxes account, which now adds up to $5125.56

So I’m short $1006.

That means budgeting this month needs to be extra, extra tight. And I might have to dip into my liquid CD to pay my estimated quarterly tax.

—-

April “Spending” Money $2410

Fixed Costs = $1422.28
————–
$71.33 — Cable Bill
$129 — Health Insurance
$87.33 — Car Insurance
$57.62 — Phone Bill
$1050 — Rent
$27 — Gym Bill

Credit Card Debt: $882
to pay this month $500
———————————

$1922.28

———-

$487.72 left

Food? Taxes? Gas?

——–

The Good News…

Still Owed for this month: $1325

($400 for marketing copy
$525 for marketing article
$400 reimbursement)
[[+487.72]]

(TOTAL: $1752.72)

If I get paid all of this in time…

$1300 to taxes
$200 to food
$100 to Roth IRA
$152.72 Stays in Checking

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Why am I so short? I shouldn’t be this short, but it will take me until the end of April to earn all the money I need to pay for my Jan – April estimated taxes. I could just pay less than I’m supposed to and hope that it all works out in the end. This isn’t entirely a stupid thing to do because I think based on last year’s taxes I could undershoot what I’m going to have to pay this year and still be penalty free. But I’d rather keep on top of things.

Also, none of this takes into consideration the fact that I have to pay to deal with 2007 taxes.

What have I done, oh what have I done????

Estimated Tax Worksheet – could it be any more complicated? (Don’t Answer That)

Ok, going by the estimated tax worksheet, perhaps I owe a different amount for this quarter.

1. Adjusted gross income you expect in 2008:

(Adjusted gross income. Use your 2007 tax return and instructions as a guide to figuring out the adjusted gross income you expect in 2008. see Expected AGI — Line 1 in chapter 2 of Pub. 505 — “Your expected AGI for 2008 (line 1) is your expected total income minus your expected adjustments to income”)

Let’s just say $66,000 and forget any adjustments I might take.

2. Estimated total of itemized deductions: no idea

3. Subtract Line 2 from Line 1: $66,000

4. Exceptions: Multiply $3,500 by the number of personal exceptions = $0?

5. Subtract line 4 from line 3 = $66,000

6. Tax =
Figure your tax on amount on line 5 by using the 2008 Tax Rate Schedules on page 5. *If you have qualified dividends or a net capital gain, or expect to claim the foreign earned income exclusion or housing exlucsion, see “pub 505” to figure the tax.

  • 10% on income between $0 and $8,025
  • 15% on the income between $8,025 and $32,550; plus $802.50
  • 25% on the income between $32,550 and $78,850; plus $4,481.25 = $12843.755
  • 28% on the income between $78,850 and $164,550; plus $16,056.25
  • 33% on the income between $164,550 and $357,700; plus $40,052.25
  • 35% on the income over $357,700; plus $103,791.75

7. Alternative minimum tax from Form 6251: (this AMT confuses me to no end so for now I’m going to pretend it doesn’t exist and hope it doesn’t effect me.

What is the AMT? The AMT came into being with the Tax Reform Act of 1969. Its purpose was to target a small number of high-income taxpayers who could claim so many deductions they owed little or no income tax. A growing number of middle-income taxpayers are discovering they are subject to the AMT.

8. Add lines 6 & 7. Add to this amount any other taxes you expect to include in the total on Form 1040, line 44, or Form 1040A, line 28 = $12843.755

9. Credits (not not include any income tax withholding on this line): huh?

10. Subtract line 9 from line 8. If zero or less, enter 0 = $12843.755.

11. Self employment tax. Estimate of 2008 net earnings from self employment. (if $102,00 or less, multiply the amount by 15.3% — Caution: If you also have wages subject to
social security tax, see Pub. 505 to figure the amount to enter) = $10,098

12. Other taxes (see instructions below): let’s just say none.

13a. Add lines 10 through 12: $10,098
b. earned income credit (forms 4136, 8801 (line 27) and 8885) – None (you have to earn less than $17k for this.)
c. total 2008 estimated tax. Subtract line 13b from line 13a. If zero or less, enter 0 = $22,941.755

14a. multiply line 13c by 90% (unless you’re a farmer or a fisherman, then it’s 66.5%) = $20,647.58
b. enter the tax shown on your 2007 tax return (110% of that amount if you are not a farmer or a fisherman, and the adjusted gross income shown on that return is $150k or more) = no idea yet
c. required annual payment ot avoid a penalty. Enter the smaller of line 14a or 14b = $20,647.58

15. Income tax withheld and estimated to be withheld during 2008: none.

16a. subtract line 15 from line 14c:
Is the result zero or less?
Yes — stop here. you don’t have to pay anything.
No – go to line 16b…

16b: subtract line 15 from line 13c
is the result less than $1000
yes – stop. no money needed.
no – go to line 17 to figure your required payment

17. if the first payment you are required to make is due april 15, enter 1/4 of line 16a:
$20,647.58 / 4 = $5161.89

(but this doesn’t at all include state taxes. I wonder if there is a separate quarterly estimated tax payment for that.)

Freelance Life: Estimated Quarterly Taxes

I may be way off on this… but my calculations amount to an:

Estimated Quarterly Tax: $6,706

Without the help of a CPA, I’m trying to figure out my estimated quarterly tax payment. My calculations, while likely closer to accurate than I’d like to believe, are definitely more than I have in my “for taxes” saving account.

The good news is that for this year at least, I’m allowed to put 90% of my previous year’s taxes into my estimated tax payments each quarter. And last year, since I was working full time and making much less money, my tax payments for the year were not that huge. I think… and please correct me if I’m wrong… that as long as I pay 90% of last year’s taxes (divided by four) then at the very least the government won’t be charging me any penalty fees.

Regardless, I probably should try to just pay 100% of my estimated tax to avoid a really awful April 2009.

That said… I’m trying to understand these calculations, without figuring out my deductions (since any deductions I can take will just mean that I can get a refund. And I’d rather just get a refund than deal with sorting out deductions each quarter. It’s hard enough to do it once a year!)

—-

Tax Guestimates

Assuming I make $5500 a month for the entire year (I’m overestimating given that I’m making about $5000-$5300 now in any given month… some months I make more.)

TOTAL TAXES = $26,821.362 (or 40.6% of $66k yearly income)

FEDERAL
[$8025 at 10%] $0 – $8025 = $802.50
[$24524 at 15%] $8026-$32550 = $3678.50
[$33,449 at 25%] $32,551 – ($78,850) $66,000 = $8,362.25

Total Federal Tax: $12,843.25

STATE

0% $0 – $6828 = $0
[$9357 at 2% ] $6829 – $16186 = $187.14
[$9358 at 4%] $16187 – 25545 = $374.32
[$10,005 at 6%] $25456 – 35461 = $600.30
[$9353 at 8%] $35462 – 44,815 = $748.24
[$21,184 at 9.3%] $44816 – 66,000 = $1970.112

Total State Tax: $3880.112

SELF EMPLOYMENT TAX

[$66,000 at 15.3%] = $10,098

Total Self Employment Tax: $10,098



Estimated Quarterly Tax: $6706

Eeks!!! $6,706?

I’ve only saved about $4,500 for this quarter’s taxes. Well, I’ll really be saving more like $6,500, but I don’t get paid until the end of the month, so the next $2,000 I’d put away, which would be for my March-April “month” of work ending April 20, will not be paid until the end of the month. So how am I supposed to pay that in advance?

I’m so, so, so confused.

State Income Taxes: Why California Sucks

When I headed west and moved to California a little over two years ago, I was fresh out of college and not at all worried about taxes. All I wanted was to move away from Chicago’s bitter cold and into the Cali sun. At that point in my life I figured I’d be lucky to ever make $20k a year, and being in such a low income bracket, the income tax amount from state to state didn’t make much difference.

Actually, at the time I didn’t even realize that there was a difference per state in terms of income tax levels. I just thought that everyone in any state paid the same amount for state and federal taxes, just that the state taxes went to the state you lived in and federal went to Bush and his war.

Apparently – that’s not correct at all. (Duh, me.) Each state has its own state income tax. Just my luck, California is the worst for income tax rates at my level of earnings.

Even New York and my home state of New Jersey would be cheaper when it comes to state taxes (although they’re both ranked highly in the list of “expensive income taxes.”)

For a yearly income of $50k – $60k (which is about what I expect to bring in over 2008)…

My state income tax rate & fee,
assuming an annual income of $55k:

California — 9.3% or $5115
New York — 6.85% or $3767.50
New Jersey — 5.525% or $3038.75

I’m surprised at how expensive it is to live in Maine. 8.5% for anyone making $17k or more. Yikes. Who really wants to live in Maine anyway?

Talking Taxes

My taxes for 2007 are going to be a total nightmare. I tried to figure them out on TurboTax a few months ago before getting my official W2s, but I’m afraid I’m missing major deductions that I should be taking (or taking deductions I shouldn’t be taking).

That has led me to seek out a CPA. So far the one who has written back to me charges $155 an hour with a two hour minimum. Eeks. And I thought $80 for TurboTax was pricey.

While $310 for an accountant to do my taxes won’t be the end of the world, it still sucks. I feel like I should be able to figure out taxes for myself given that my overall earnings for the year was less than $35k. Unfortunately that $35k came from a bunch of different places.

Meanwhile, my uncle – who I do some small amounts of freelance work for – told me that while he’s not sending me a 1099 form I have to report the earnings. Of course I have to report the income, but I thought that he also had to report the earnings. So I’m a bit confused about this – if he doesn’t report the earnings will I get him in trouble if I report them?

Do you guys think it’s worth $310+ to have someone prepare my tax returns? Or should I just do TurboTax and hope that I don’t majorly mess anything up?

What to do about GLD?

A few months ago when I dove into the market with idealism and ignorance, I wanted in on all this gold excitement in the market. I believe the market is tanking, a recession is inevitable (if not already happening) and gold will do well for a while. I believe, and largely still believe the hype.

However, what I didn’t realize at the time (damn me for not reading the prospectus or understanding tax law) is that GLD, being as it actually means I hold a small tiny piece of actual gold, is considered a collectible by the IRS.

Why does that matter?

Well, normal long term capital gains are apparently taxed at 15 percent, which is actually pretty nice given that you can make a lot of money in the stock market, and as long as you hold your stocks for a year you only have to pay the 15 percent tax.

However, GLD, the “collectible,” is taxed at a rate of 28 %.

Oy!

So now I’m trying to figure out what to do with the GLD stock in my Sharebuilder account.

I understand the long term capital gain tax, but I’m still unclear what the gains would be taxed at if I cashed out in less than a year. I’ll probably want to do that anyway given that gold’s price will hit the roof at some point, the dollar will recover with the new president coming in (hopefully) and I can sell off the gold.

But what rate will GLD be taxed at if I sell it within a year?

Also, I’m buying it about once a month in smallish increments. Right now I own about $470, or a little less than 5 shares of GLD. As of today, the account has a net profit of $34. To sell it, though, would cost $10. So if I sell today, I made $24. But that $24 will be taxed. What rate would it be taxed at?

When it comes to long term capital gains, is the “one year” policy based on when you bought each share? What if I bought a part of a share per month? When can I sell to get the long term capital gains tax instead of the short term tax? And would I want to wait or sell sooner for my GLD holdings?

Can someone explain this to me…?

Freelancer Woes: Taxes, Taxes, and More Taxes

While I’ve gone through periods of working part-time gigs and freelancing for a little extra cash on the side, 2008-2009 will be the first year when I’m likely going to be a contractor all year long. I love the freelance lifestyle, as I can finish my work hours when everyone else is asleep, or get all my hours done straight through and leave myself time to relax for an extra weekend day, if possible. There are so many things I love about being a freelancer (albeit one with a stable freelance gig) that I’d be hard pressed to give it up.

One thing that might, just might be able to get me to give this wonderful lifestyle up is taxes.

Just trying to figure out how to sort out my taxes owed as a freelancer seems like a giant nightmare. On top of that I now have Prosper taxes (which sounds like it will be worse than a nightmare to file) and my various stocks, ETF and mutual fund accounts to tax…

Originally I thought sorting out my taxes would be simple as taking 25 percent of all my income each month and putting it into a highish-interest ING savings account. Come tax time, my tax money will have made a little money (although that will be taxed to) and if all worked out as I originally thought, the money in that account would certainly cover all my state and federal taxes… plus I would have saved some money by holding off on paying it throughout the year.

Given that I finally stopped to smell the dead roses, I did a little research and found out about the “Self Employment Tax” which seems to be another 15.3 % on top of the 25%. So does that mean I should be putting 35% of my income each month into my ING “for tax season” account?

And then… apparently freelancers are supposed to pay an estimated tax each month. What I don’t understand is if this is for the convenience of the freelancer (don’t have to worry about spending all your tax money and being in serious trouble come April 15) or if it’s actually required by law to pay taxes on a monthly basis instead of in one lump sum at the end of the year. If it’s not illegal, I really don’t understand why more people wouldn’t just do what I think I’m doing with this savings account and getting a few extra dollars on the money that will ultimately go to the IRS at the end of the year. But maybe I’m thinking about this all wrong.

I’m, quite frankly, terrified of tax season next year. This year is complicated enough with my two full-time jobs and freelance earnings. But next year? Well, I know I’ll have to hire an accountant. But what is it I should do now, as it starting 1.5 months ago, to make my life bearable next year… and more importantly, so I don’t accidentally end up in jail for tax fraud out of ignorance and confusion?

ps: I think I just found my answer… (I guess I do have to pay in advance!!!)
http://www.irs.gov/publications/p505/ch02.html#d0e5923


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(Thanks to the IRS for explaining, in fairly clear language, how I can give them my money)

When To Pay Estimated Tax

For estimated tax purposes, the year is divided into four payment periods. Each period has a specific payment due date. If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return. The payment periods and due dates for estimated tax payments are shown below.

For the period: Due date:
Jan. 1 1 – March 31 April 15
April 1 – May 31 June 15
June 1 – August 31 September 15
Sept. 1 – Dec. 31 January 15
next year 2

1If your tax year does not begin on January 1,
see Fiscal year taxpayers, below.
2See January payment, below.

Saturday, Sunday, holiday rule. If the due date for an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next business day. For example, a payment due on Saturday, September 15, 2007, will be on time if you make it by Monday, September 17, 2007.
January payment. If you file your 2007 Form 1040 or Form 1040A by January 31, 2008, and pay the rest of the tax you owe, you do not need to make the payment due on January 15, 2008.

Example.

Janet Adams does not pay any estimated tax for 2007. She files her 2007 income tax return and pays the balance due shown on her return on January 24, 2008.

Janet’s estimated tax for the fourth payment period is considered to have been paid on time. However, she may owe a penalty for not making the first three estimated tax payments. Any penalty for not making those payments will be figured up to January 24, 2008.

Fiscal year taxpayers. If your tax year does not start on January 1, your payment due dates are:

  1. The 15th day of the 4th month of your fiscal year,

  2. The 15th day of the 6th month of your fiscal year,

  3. The 15th day of the 9th month of your fiscal year, and

  4. The 15th day of the 1st month after the end of your fiscal year.

You do not have to make the last payment listed above if you file your income tax return by the last day of the first month after the end of your fiscal year and pay all the tax you owe with your return.

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Ok, now I just have to figure out exactly how much I have to pay them. Hmm.

Here are some helpful links I’ll be reviewing to help me figure out just that, and I’ll report back here when I actually understand what I’m talking about:

1. Write From Home: Taxes for Writers: Paying your Estimated Tax
2. Huge Taxes for Freelancers?
3. California Tax Service Center

Once I do understand all this, I can work as a freelance freelance accountant. 🙂

Oh Boy! A $600 Rebate!

I’m a little excited about getting a $600 rebate this spring, thanks to the tax rebate package that passed today. While I’m not their ideal rebate grantee (I’ll likely invest the funds, maybe into my Roth, which now has $2000 left until I max it out for 2008, though) it will make it easier to buy a few new spring pieces to my wardrobe without feeling terribly guilty about my spending (to be honest, guilt and financial logic never stopped me from spending anyway).

The good news w/ the rebate is that even if I end up owing money on taxes for 2007, I’ll actually still get a rebate or… break even.

Sweet.

I wish this happened every year!

Help Me Sort Out My Tax Mess

How on earth am I going to figure out what I owe for taxes this year?

Can’t I have one year where my taxes are straight-forward?

I guess not.

So… I have absolutely no idea how much I’ve made this year. Some of my income has been taxed, some has not. I hate having to wait for those 1099’s to come in the mail to figure out what I’ve made. I should have kept better track of things, but it’s too late for that this time around.

Here’s a guesstimate of taxable income…

startup a: $1275
startup b: $3300 (1 month)
marketing firm: $2,275
————————————————-
$6850 not taxed yet.

Plus…
Pre-Taxed income:

Job 1: $12430 ($35k/year)
[$656 a month taken out in taxes??? Or $3283.33]
Job 2: $8028 ($50k/year)
[$2973 taken out in taxes total]

————————————————–

So I’ve had $6256 taken out as taxes already??? Possibly.

————————————————–

So how much tax am I going to owe?

Oy, I’m confused.

It’s Been a While, Time for an Update

I was just interviewed for an article about personal finance sites, and the brief early-morning chat reminded me that I haven’t updated this blog in a while. I’d like to start writing regularly again, it’s just tough to keep up with my blogs and my life. I don’t know how some personal finance bloggers find the time to write, like, three posts a day.

That said, I know I left you all with that wonderful long health insurance rant cliffhanger. Cue the cheesy suspense music please… “Duhn, duhn, duhn”….

There’s good news, and there’s bad news. I still don’t have health insurance. The good news is that’s mostly because I’m lazy and less because I’ve been denied. Well, I haven’t been denied because I haven’t applied yet. I’ve been speaking with a health insurance agent who seems to think my best option is to lie on my applications, although he won’t go on record as advising that. Meanwhile he’s also helped me put together a quote for Pacific Healthcare where I don’t have to lie, and that seems pretty reasonable (something like $140 a month for catastrophic insurance).

COBRA turns out to be a whopping $405 a month, so unless it turns out I actually get denied from every other option, it’s looking like COBRA, an aptly named snake, is a type of insurance one ought to stay away from even though it’s enticing from afar.

Money matters are looking up. I’m actually getting more work than I know what to do with right now. And old colleague who is the editor of a journalism-y startup just asked me to work a few hours for her a week helping with admin stuff, doing site maintenance and at some point writing some short and fun features for the site. I have a feeling she’s going to try to encourage me to get back into writing longer-format features and news stories at some point, but I’m not sure that’s the direction I want to head in. I’m kind of happy with the freedom (and better pay) that comes with controlling my career as a freelance writer out in Silicon Valley. Unfortunately, my journalism expertise is in technology writing, and if I’m going to work for any startup in the area, it’s too conflict-of-interesty to try to swing a career half-time in journalism and half-time in writing marketing copy for these sites. This gig for my old colleague is kosher because it’s covering a specific area of technology that I will not be doing writing work for. So, that seems alright.

My biggest concern at the moment is the upcoming tax season. I just hope I get my W2 and 109 forms my way early so I can start figuring out how many zillions of dollars I owe, or don’t owe. I honestly have no idea what taxes will look like this year, and it scares me a bit. See, from Jan-June of 07 I was making “35k a year” and having taxes taken out of that. Then From June 15-Nov 15, I was making “50k a year” and taxes were swiped from my bi-monthly checks. That’s good. But after that, my tax situation turns into a bit of a mess. I’ve done a bunch of freelancing here and there. Some of it was for $50, some for $600, some for $1000. Obviously I’ll report all of the larger gigs, and try my best to remember the tally of my smaller gigs. Smart me, I haven’t been keeping track of my checks as I cashed them at the bank because I just assumed I’d have access to the scan of them later. I could have sworn at one point I saw these scans on my BankofAmerica.com account. No such luck. Apparently they charge some fee to pull up the scans of old checks. I don’t really want to find out how much that fee is. I guess I’ll just wait for my tax mail to come, and take it from there. And hopefully, at least for this year, it will turn out that my average pay was so low (due to periods of unemployment, without being on unemployment) that I’ll somehow break even on the whole tax situation. If not, there’s a chance I could owe a lot.

This is also the first year I’m going to see what having some cash in a mutual fund does to my taxes. Apparently I have to pay tax on my dividends. But right now it looks like my mutual fund, despite being ‘in the bank’ for over seven months, has returned to its original buying price. So I’m not sure how that all works out come tax time. Can someone explain this to me?