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Just started my online business. tax advice etc..?

Question: Just started my online business. tax advice etc..?

(Posted by: April D on 2009-03-31 09:29:18)

I just started my own online business as a graphic designer. Things have been going very well, and I get paid through PayPal by clients. Obviously, no taxes are taken out. So next year I am wondering how much I’ll end up having to pay…I’m in the lowest tax bracket for sure, but I still have a full time job too that I pay taxes through. Also, what can I claim as an exemption? A new computer? New software? What about stuff for making my at- home office? Thanks for all the help!


Answers:

Posted by: HRBlock Shannon C on 2009-03-31, 10:51:56

Congratulations on your new business!! It’s always exciting starting a new venture in life. How much you pay in taxes will depend on a lot of factors. There are two types of taxes you will be paying regular income taxes, and then self employment taxes. The amount of regular taxes you will have to pay will depend on your total worldwide income, everything that is taxable and what percent the IRS says they want taxes paid in at. So if you had $40,000 in wages from your job on a W-2, and $20,000 you made from graphics designs, then you would have $60,000 and most likely be in the 25% tax bracket if you are single. But if you make double the money in graphic designing, then you would move up to the 28% tax bracket. Then for self-employment taxes, you are most likely looking at a total of 15.3% of your taxable earnings. This is where you pay social security and medicare taxes as your own boss and your own employee. (When you are at a regular job, you pay 7.65% for these two taxes, and your boss does, too. But as a self employed person you pay for both parts.) The good news is, that you reduce your taxable self-employment income by taking your expenses. So if you had to buy a new graphics card, or a higher resolution monitor or software for image munipulation then you could take some part of thoses costs to reduce you earnings. (Example: You made $20,000 from self employment, but you spent $100 on advertising business cards, $400 on a high dpi screen, and $500 on a good editing program. You may be able to take the $20,000 and then subtract the $1,000, so only $19,000 is potentially taxable.) There are a lot of things you could be looking for to use business expenses. But depending on what they are, there may be different ways to treat them. Anything you have to buy to run your business, is likely to be a deduction. There are very strict rules for an office in home, however. I will give you a few links on self-employment incoem and deductions. I hope this helps! Shannon hrblock.com/ taxes/ tax_tips/ tax_planning/ self_employment.html?ttiptitle= Self-employment

  

Posted by: LAURENCE B on 2009-03-31, 11:01:22

If you are a simple sole proprietorship, you will pay tax on the net business income-your income minus your expenses. This is reported on Schedule C and SE which is attached to your form 1040. Save receipts for anything you pay for for the business. A computer is usually depreciated over 5 years. You can expense software. There are several rules regarding office-in home deduction which you should review. You can get this on the irs.gov site form 8829. It not always such a great deduction especially if you are already deducting mtg interest and real estate taxes. You really need to see a good tax preparer in your area, especially if you are making substantial money (over $10,000)

  

Posted by: Mark F on 2009-03-31, 11:12:12

You’ve already got some good answers above… As someone who has started several businesses, the best advice I can give is to keep things simple! Until you get a lot of traction, stay as a sole prop…the taxes are way simpler than when you get into LLCs, Corps, etc. Also, be disciplined about paying quarterly taxes. It will make April much more bearable every year if you have stayed organized.

  

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