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Thread: Taxes

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    Taxes

    Let's say Bob is a kid (under 18) who makes $100k/year online. His mom, Mary Figgleworth, sells processed frog brains to people, and earns $60k/year doing it. Bob has an AdSense account under the name Mary Figgleworth. Mary doesn't want her tax bracket raised by things done by Bob. Can Bob file under his own name? The checks are in Mary's name, but it's Bob who's doing the work and earning the money. Can Bob pay tax on the money, or does Mary have to?

    Also, Bob has a ClickBank account. ClickBank requires you to provide an EIN, otherwise they won't send out more than $500/year. Bob earns more than $500/year with ClickBank. The ClickBank account is also under the name Mary Figgleworth. Can Bob pay tax on the ClickBank checks, or does Mary have to?

    Also, does Bob get any tax breaks for being under 18, or in school, or something?

    I know I should be asking an accountant all of this, but there's no use wasting a bunch of money on a hypothetical situation that requires a serious answer.
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    ☆★☆★ silver trophy vgarcia's Avatar
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    Mary is going to get screwed and shouldn't have given Bob access to her information if she didn't want the hassle.

    All the income was reported under Mary, so Mary is going to get stuck with the bill. Bob is technically Mary's dependent so he would still be her responsibility anyway.

    If Mary was smart she'd make Bob put everything in his name the second he turns 18.

    Bob would be able to get a tax break if he was in college, but since he made more than $50K and he's a dependent under his mom he won't be able to.

    Also, GET AN ACCOUNTANT.

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    Mary doesn't care about the hassle; Bob will probably pay her off to deal with it anyway. Mary is happy Bob is doing so well, and happy that she'll get big birthday presents when Bob moves out because she did Bob's laundry, and he appreciates that. When Bob turns 18, everything will go into Bob's name, but Bob won't be 18 for another 3 years.

    What if Bob becomes legally emancipated, but the AdSense and ClickBank accounts are still in Mary's name until Bob turns 18?

    Thanks very much for the help.
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    Non-Member Frozentoast's Avatar
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    Bob is hurting my head, but is definitely my favorite fictional character of 2006 so far.

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    Yes, Bob is pretty awesome.
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    SitePoint Guru Marubozo's Avatar
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    Looks like Marry is going to be upset with Bob for putting her in another tax bracket.

    Actually, minors can file their own tax returns seperately even if claimed as a dependent. Unfortunately, this would mean that in order for the minor to file a return, the income would have to be reported under their SSN/EIN. But unless that is the case, if the accounts are under Mary's SSN/EIN, the income will be reported to her and be required to be reported on her taxes.

    One solution for Mary in 2006 to avoid this from happening would be to create a seperate taxable business entity and then set up all income generating accounts to operate with the company's EIN. That way Mary will not show additional income, and Bob could be an employee of the company, then able to file his own income taxes.
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    Thanks for the advice. I didn't think of doing the company thing.

    Would child labor laws prohibit Bob being hired by the company and spending 6-7 hours per day creating more income-generating websites?
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    SitePoint Guru Marubozo's Avatar
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    The Fair Labor Standards Act (FLSA) sets 14 as the minimum age for most non-agricultural work. However, at any age, youth may deliver newspapers; perform in radio, television, movie, or theatrical productions; work in businesses owned by their parents (except in mining, manufacturing or hazardous jobs)...
    Some states have other restirctions, so depending on where Bob lives, the law may be slightly different. But generally speaking, 14-15 year olds are able to hold certain types of jobs, and in most instances, they can work for a family business regardless of age and provided it is not dangerous.
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  9. #9
    perfect = good enough peach's Avatar
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    Back when I was bob, I went to the chamber of commerce with Frank, bobs dad. Bob and Frank signed a contract that legally made bob responsible for the company they registered under bobs name. As a result bob had to take care of income tax and VAT all by himself and it was a pain in the *** but bobs that was clear from trouble.

    Im not sure if something similar is possible in the states, I bet you can get a similart arrangement done.

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    SitePoint Guru Marubozo's Avatar
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    Oh, this may be of assistance as well:

    http://www.dol.gov/esa/programs/whd/state/nonfarm.htm

    There are some restrictions in regards to whether the child works during the day or at night, and whether they are in school or not, etc.
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    I don't think child labor laws pertain to the owner of a company, and Bob would be the owner, right? I owned at least one company starting when I was 15, and I never worried about working too many hours.

    I think the best thing for "Bob" to do would be to talk to an accountant.

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    OK, Bob will talk to an accountant then. The company idea seems like it'd be the best.

    I'll let you all know when the book is out. I was thinking I'd call it "Adventures of Bob" but now I'm leaning towards "Bob vs. US Government."
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    SitePoint Co-founder Matt Mickiewicz's Avatar
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    If it's a "serious situation" as stated in the first post, and over $100K is involved, Bob should cough up a couple hundred dollars for some good advice (and I don't mean H&R Block).
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    I'm with Matt. If you’re pulling in over $100k an accountant can probably save you more than you end up paying the guy for his PROFESSIONAL help.

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    I don't think there is anything an accountant can do here. If Mary is close to retirement age, she can put most of this 100k in her retirement plan and write it off.

    What Bob and Mary can do is hire a tax lawyer who will negotitate a lower payment with IRS. Because IRS doesn't have any more powers than private collection agency, they are lenient when the person can't pay in full and usually will agree to lesser amount. Bob and Mary could think of some expense they had that doesn't let them pay full amount (the lawyer will help with that).
    Other than that, they are screwed.

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    SitePoint Guru Marubozo's Avatar
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    Quote Originally Posted by demosfen
    If Mary is close to retirement age, she can put most of this 100k in her retirement plan and write it off.
    Probably not. There are contribution limits to retirement plans. For IRAs, the limit is $4,000 per year, and even if she was over 50, the catch-up provision only allows for $5,000.

    And since this income isn't part of a deferred compensation plan, such as a 401(k) or similar account, that money can't be used to fund her employer's retirement plan.

    The closest thing she could do to contribute that money into a retirement plan would be with a SEP IRA (Simplified Employee Pension plan). Even here, the contribution limits are 25% of income, up to $42,000.

    Granted, if these accounts are setup and funded before April 15, you can use the contributions for the 2005 tax year. But regardless, there is no way to simply take a large chunk of money like that and stash it all away into a retirement account.
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  17. #17
    Non-Member demosfen's Avatar
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    Ok, then I guess accounting is useless here, the only serious option left is go to a tax lawyer and discuss a possiblity of negotiating a lower amount with IRS.
    Also Bob could get some ideas here

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    Quote Originally Posted by demosfen
    I don't think there is anything an accountant can do here. If Mary is close to retirement age, she can put most of this 100k in her retirement plan and write it off.
    The problem here is that Bob needs the money to buy a house, but Bob probably won't be buying the house until July.

    I read the article on tax resistance. It's not going to work for him.

    Next year, Bob will probably form a company, or have Mary do it. Then, the company will pay Bob's salary, which will be 99% the earnings. The other 1% will be paid to Mary, who will donate it to a charity and get a tax deduction for it.

    Probably not. There are contribution limits to retirement plans. For IRAs, the limit is $4,000 per year, and even if she was over 50, the catch-up provision only allows for $5,000.
    Mary won't be 50 until Bob is 18.
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