Hello,

I have read through the tax information in the new shopper area. It makes sense, and I understand the schedule C that has to be filled out. I have income (what I was paid, not including reimbursements), deductions (for me, seems just straight mileage, and perhaps a copy of Turbo Tax). Take that income subtract the deductions ((mileage x .656) + Turbo Tax). This amount is my taxable income. If it is over $400, then I must also pay Self Employment taxes.

Based on this, I am looking at about $3000, that I then have to pay over 15% of self employment tax on, then on top of that 30% income tax. This leaves about 1785 in take-home. I am beginning to think that it is not worth the time and effort for that amount. Am I doing something wrong?

Thanks

the income tax rate is not 30% on 3000

It's not on just 3000, but based on my household income, it is 30%.

If you have other income pushing you into a higher tax bracket, yes it will seem like you're getting taxed a lot on that $3000. For better or worse I have not had to deal with that problem during the years I've been active MSing -- yet.

Have you thought about filing singly instead of jointly? My tax preparer always figures our taxes out both ways, but it always comes out better for us to file jointly. But everyone's circumstances are different, and I've heard that sometimes it's better to file married, filing singly instead of married, filing jointly.

I almost always show a paper loss (all legal and legitimate) so my self employment helps to push our income lower, so we pay less in taxes. But I can see if you're paying more due to the amount of net income you're generating, it doesn't seem worth it....

Are you taking deductions for your other expenses, such as equipment used? E.g., phone and phone expenses (only that portion applicable to business, of course!), digital camera, computer & printer, etc.? For my other business, I can take deductions on all those things, because I need them to conduct business....

BirdyC Wrote:
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> I almost always show a paper loss (all legal and
> legitimate) so my self employment helps to push
> our income lower, so we pay less in taxes. But I
> can see if you're paying more due to the amount of
> net income you're generating, it doesn't seem
> worth it....

You want to be careful about showing a loss too often. In the US, if you show a loss in three out of five years, the IRS presumes you have a hobby, not a business, and this makes it much more difficult to claim deductions as hobbies do not qualify for a lot of deductions that businesses do.

I was told a few weeks ago that they might assume it's a hobby, and they may try to bill you for extra taxes, but if you can prove that it's a legitimate business that operates at a loss the 3 out of 5 year rule does not apply. Disclaimer: this did NOT come from an accountant or tax preparer, but it did come from someone who has run businesses before that have operated at a loss, does his own taxes as well as the taxes of most of his extended family, and I feel like he's pretty well informed. I would be interested to hear what an actual accountant has to say about it.

bgriffin, that's exactly what all of the tax preparers who have done my business returns over the last 25 years have said. Two of these folks were CPAs and the other one, who does my taxes now, is a certified tax and investment specialist (or some such designation).

For example, when I sold real estate part time, there was a run of three years where I showed a loss after all deductions, and I was worried about this "hobby" rule. But my CPA told me that as long as I was out there trying to sell, which I was, and marketing my services, which I was, that I didn't need to worry about this. Actually, real estate was my second source of income, but he said I was still OK.

When I was doing marketing communications and consulting (which was my primary income source), I showed a yearly profit up until I "semi retired," but again, that was my primary business and I could prove it, so no problem.

Now that I'm engaged in another business, and actively pursuing it as my primary source of income, my tax guy says the same thing--as long as I can prove I'm working it as a true business and not just using it to decrease my taxable income, I am OK. He says he's never had the IRS use that "hobby" rule for any of his clients.... That's just his experience, of course, but there it is. If I were, for example, a teacher who sold antiques and collectibles at shows I traveled to only during the summer, that would probably be an entirely different matter. The "hobby" rule would likely apply after three years of losses.

bgriffin Wrote:
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> I was told a few weeks ago that they might assume
> it's a hobby, and they may try to bill you for
> extra taxes, but if you can prove that it's a
> legitimate business that operates at a loss the 3
> out of 5 year rule does not apply. Disclaimer:
> this did NOT come from an accountant or tax
> preparer, but it did come from someone who has run
> businesses before that have operated at a loss,
> does his own taxes as well as the taxes of most of
> his extended family, and I feel like he's pretty
> well informed. I would be interested to hear what
> an actual accountant has to say about it.

Interesting, thanks for the information!

Although you cannot take a portion of your landline hone expenses, you probablycan take a ortion of your cellphone, and internet fees. Also, paper, printer ink, internet, office supplies. did you buy a DVR, GPS, digital camera or other small electronics for you shops?

AS Wales mentioned above, if you purchase any items you may need for your business (new camera, scanner, faster computer, etc.) and take the full section 179 deduction for them.

If you have another income source and are not filing jointly, like me, you may fall into the group that are better off as a lifestyle shopper than one approaching it as additional income. Remember that the reimbursements are tax free and you end up buying a new computer to lower your tax burden, that's really just another way you are getting free stuff from MSing.

I think my net income from MSing this year is around $2k, but my reimbursements are over $30k!

I know FOR SURE the highest tax bracket is definitely NOT 33% as I've always though. My husband makes very good money, but I've seen his checks: we pay almost 50% ! So, we live paycheck to paycheck, which is crazy, considering we aren't in So Cal anymore!

amberngriffinco Wrote:
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> I know FOR SURE the highest tax bracket is
> definitely NOT 33% as I've always though. My
> husband makes very good money, but I've seen his
> checks: we pay almost 50% ! So, we live paycheck
> to paycheck, which is crazy, considering we
> aren't in So Cal anymore!


39.6% is the highest income tax rate and applies to those making over 400,000/yr
or over 450,000/yr if you file jointly

The highest federal income tax bracket for 2013 (according to Bankrate) is 39.6 for a married couple at $450,000 plus. Next down the list is 35% at $398,351 to $450,000. Other withholdings could be social security, medicare, state and local taxes, and 401K contributions. It all adds up.

that is why you need to have your money in the stock market. The
tax rate is only 20% on profits. And those that do are making a killing
with all the records it is hitting. Once the easy money policy ends next
year, it will drop significantly so just cash out by then and you will be ok.

Don't confuse withholding and paying. Regardless of the percentage being withheld from the paycheck you are not paying that much unless you don't get a refund at the end of the year. I have known people who claimed zero allowances so more would be taken out of their checks and they would get a larger refund. If such a large amount is being deducted that it causes you hardship it may be time to take a look at your husband's W-4 and make an adjustment.

MDavisnowell Wrote:
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> The highest federal income tax bracket for 2013
> (according to Bankrate) is 39.6 for a married
> couple at $450,000 plus. Next down the list is
> 35% at $398,351 to $450,000. Other withholdings
> could be social security, medicare, state and
> local taxes, and 401K contributions. It all adds
> up.


...and even at $400k, you won't pay 35% on the entire amount. You only pay 35% of the adjusted earnings over $389.351. The remainder is taxed at the corresponding rates for each tier, so it can be around 30% overall.