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  1. #1
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    Basic tax question

    Lets say you make 10,000 in revenue and you spent 5k in expenses than your taxed 3k for the year. For example ets say your tax bracket is 30%.

    How does this tie in with each other and what is considered taxable income ? Can someone help me get a rough idea of how this works ?

    My understanding is 10k(income) - 5k(expenses) = 5k (taxable income)

    So i assume 5k gets taxed at a rate of 30%.

  2. #2
    SitePoint Wizard silver trophy
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    In the US, if you own a legitimate business (i.e. you file under a Scheule C or whatever and not on the "Additional Income" line on the 1040) then all legitimate business expenses deduct before calculating your taxable income.

    Your calculation is correct.

    There are other factors too, though. Some purchases must be depreciated (certain types, or over a certain amount) and others can't be deducted in full (meals can only be deducted 50%).

    I'd advise you to talk to a tax professional or AT LEAST get a tax program that does business taxes. They will help you determine exactly what legitimate expenses you can deduct and what you have to claim as income.

  3. #3
    SitePoint Guru godsfshrmn's Avatar
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    I have a similar question. I made a decent amount from my website this year. I am not sure if it is considered a business or not. If it is, I could claim my computer as a deduction since 75% of its use is on the website. Should I claim income under a business, or do I need to do it under 'other income' since the site is not registered with any type of government agency (registered business)
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  4. #4
    SitePoint Wizard silver trophy
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    godsfshrmn, if you're in the US you will need to either claim the income as "extra income" or through a business. Even if you don't have a "registered business" you can still probably claim it under your own name (still as a business).

    However, in most places in the US if you make over a certain amount of money you are required to have a business license. This is a local ordinance and doesn't have any bearing on state or federal taxes. You should contact your county or city tax office about obtaining one.

    To find out more, again only if you are in the US, check out www.irs.gov and your state's dept of revenue website. They both have numbers you can call to get detailed information.

    IANAL or accountant, and I highly recommend you talk to one before submitting your taxes. Take anything I say with a grain of salt... I probably don't know what I'm talking about

  5. #5
    SitePoint Guru godsfshrmn's Avatar
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    I'm so confused! I'm only 20 and I don't think it would be worth visiting an accountant. I didn't make that much. I am thinking about just claiming it under 'other income', but that would mean I would be paying in almost $200. =/
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  6. #6
    SitePoint Wizard silver trophy
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    If you don't claim it and get audited you can pay penalties, interest and more.

  7. #7
    Non-Member demosfen's Avatar
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    Think about what else you could claim as expenses. You don't need receipts if it's under $75 I believe. If it's over $75, lack of receipt won't be uncovered unless you are audited, in which case you won't be able to prove it so you'll still have to pay in full. Statistically possibility of audit is roughly 1%. Get the hint?
    As far as not claiming income, I don't think it's worth it moneywise if you're not earning a lot. A few years ago IRS audited someone who didn't pay tax on $4 million and they fined him for 14k. Since it took them about 5 years to catch up, he made much more than 14k in interest. But if you are only making a few thousand, I would report it. A few hundred $$ that you'll save is not worth risking the penalty you'd be paying in case of audit (or so I think - do your math)
    I am not a accountant (although I picked up a few things, including the above, from one) and I don't know all your circumstances, so...

  8. #8
    SitePoint Wizard Lil_Red's Avatar
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    Quote Originally Posted by godsfshrmn
    I'm so confused! I'm only 20 and I don't think it would be worth visiting an accountant. I didn't make that much. I am thinking about just claiming it under 'other income', but that would mean I would be paying in almost $200. =/
    Actually, it might be very worth visiting an accountant. Remember the accountant's fee is a business expense and can be deducted.

  9. #9
    SitePoint Guru godsfshrmn's Avatar
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    Around what cost am I looking at?
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  10. #10
    Non-Member demosfen's Avatar
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    Mine charges around $80, but you seem to have a simple case so it would be less
    IMO going to accountant is not worth it in your situation, especially if you don't know a good one

  11. #11
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    Just go to a cheapie tax prep service, like H&R Block. It'll probably wind up saving you $ even after the fee. Also you'll be legal and know what to do next year. If you can't do that, buy some tax software.

    If that isn't good, there are plenty of uncertified people who like to play accountant (an laywer) on sitepoint. After all, what could possibly go wrong with getting tax advice from a total strange, based on limited information, on the internet!
    The fewer our wants, the nearer we resemble the gods. Socrates

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  12. #12
    He's No Good To Me Dead silver trophybronze trophy stymiee's Avatar
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    Quote Originally Posted by demosfen
    Think about what else you could claim as expenses. You don't need receipts if it's under $75 I believe. If it's over $75, lack of receipt won't be uncovered unless you are audited, in which case you won't be able to prove it so you'll still have to pay in full. Statistically possibility of audit is roughly 1%. Get the hint?
    As far as not claiming income, I don't think it's worth it moneywise if you're not earning a lot. A few years ago IRS audited someone who didn't pay tax on $4 million and they fined him for 14k. Since it took them about 5 years to catch up, he made much more than 14k in interest. But if you are only making a few thousand, I would report it. A few hundred $$ that you'll save is not worth risking the penalty you'd be paying in case of audit (or so I think - do your math)
    I am not a accountant (although I picked up a few things, including the above, from one) and I don't know all your circumstances, so...
    Please refrain from offering advice that is clearly illegal.

  13. #13
    Life is short. Be happy today! silver trophybronze trophy Sagewing's Avatar
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    Unethical, and unwise, too.
    The fewer our wants, the nearer we resemble the gods. Socrates

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  14. #14
    Non-Member demosfen's Avatar
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    Quote Originally Posted by stymiee
    Please refrain from offering advice that is clearly illegal.
    I didn't. Why do you think my sig line is " Disclaimer: this is not a legal advice"

  15. #15
    He's No Good To Me Dead silver trophybronze trophy stymiee's Avatar
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    Quote Originally Posted by demosfen
    I didn't. Why do you think my sig line is " Disclaimer: this is not a legal advice"
    You clearly encouraged someone to do somehting that was illegal. You're signature hardly validates it.

  16. #16
    Non-Member demosfen's Avatar
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    Quote Originally Posted by Sagewing
    Unethical, and unwise, too.
    Not to start a political debate, but with 50%+ of income tax going to support the military, I don't consider it is unethical. You are free to have your opinion and I am free to have mine, right?

  17. #17
    Resident Grump BillyParadise's Avatar
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    Unethical from the point of encouraging others to break the law. Not about where your tax dollars get spent.

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  18. #18
    l 0 l silver trophybronze trophy lo0ol's Avatar
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    Quote Originally Posted by demosfen
    Not to start a political debate, but with 50%+ of income tax going to support the military, I don't consider it is unethical. You are free to have your opinion and I am free to have mine, right?
    You just did. And that opinion (any political opinion) is not valid here.

  19. #19
    He's No Good To Me Dead silver trophybronze trophy stymiee's Avatar
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    Quote Originally Posted by demosfen
    Not to start a political debate, but with 50%+ of income tax going to support the military, I don't consider it is unethical. You are free to have your opinion and I am free to have mine, right?
    Political discussion is not allowed here.

  20. #20
    Non-Member demosfen's Avatar
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    I am just saying that certain % of income tax is spent for certain activity, that's all, no desire of debating at all.
    Back to topic, it may not be illegal for him depending on his circumstances and on what law you are looking at. We have contradicting laws. The Constitution is pretty clear that it's not illegal as far as I can tell
    Off Topic:

    Unethical from the point of encouraging others to break the law. Not about where your tax dollars get spent.
    For me ethics don't have anything to do with breaking local laws. Would your ethical beliefs be different if you lived in Germany in 1935? Mine wouldn't

  21. #21
    SitePoint Wizard silver trophy
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    Regardless of the reason, offering advice that results in someone breaking the law is not allowed here. If you can't offer legal, constructive advice (or have a question about whether it would be legal) don't offer it. It's that simple.

  22. #22
    Non-Member demosfen's Avatar
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    I'm not suggesting breaking the law - we have contradictory laws and it's debatable whether it's legal or not. A lot depends on particular circumstances and what law applies. It's not all in black and white.

  23. #23
    Non-Member demosfen's Avatar
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    Perhaps you should tweak the rules a bit, there is no such thing as 'clearly illegal'. "Illegal in Sitepoint's opinion" would be better

  24. #24
    He's No Good To Me Dead silver trophybronze trophy stymiee's Avatar
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    Telling someone to evade taxes is illegal everywhere. End of discussion.

    Going forward please keep this discussion on topic.


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