Self Employment & Taxes

I'm curious. Do those of you experienced in Affiliate Marketing generally put away the tax man's share of your affiliate earnings for safe keeping, or do you wait until the bill is due and hope you haven't spent it all?

After my business and personal expenses are met, I've been taking what's left (if there is any) on a trip to Bloomingdales. Not wise I know, but after years of being an employee where money for taxes, 401k, savings and so on are taken away before I ever get my hands on my pay, I've found making the transition to responsible business owner who put's money away for another day not an easy one.

Well if you KNOW you're going to have trouble, you should be setting aside enough to voer your tax paument in a seperate account somewhere.

If AM is not your day job, put away half. In a state like California, something like 28% Federal + 7% State + 15% Social Security = half.

Naturally, expenses offset that, and if AM is your day job, you'll have some taxed at a lower bracket. So in that case, at the end of the tax year, you apply the discounts, and what you don't send to Uncle Sugar, you take to Bloomies.

I save up a big bunch of $$$ for taxes. It's always a shock to check the bank balance just after the IRS cashes the check...OWWW!!

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Tulip Bulbs
There is no knowledge that is not power. ~Hemingway

Technically, if you are working on self-employed status, you are supposed to be making quarterly deposits throughout the year. If your tax due when you file your 1040 on April 15 is over $1,000 you could be hit with penalties and interest for not making the quarterly deposits.

Personally, all my AM income goes into a Sub-S Corporation. The corporation pays me a paycheck every month and I have more than the required amount taken out for income taxes, and the corportion pays the taxes withheld to IRS quarterly. Even after this, when I did my estimate at the end of the year, I still owed $1,600, but that's because I made the most money in the 4th quarter. So I made one quarterly deposit at the end of the year by January 15. I sure don't want to pay penalties and interest to IRS.

Pretty much on par with Tracy but I pay quarterly still. Normally, you are okay until the IRS sends you a letter and says - "guess what idiot, pay us every quarter because we like to see you cry." Having your money filter through a corporation has many benefits, though now that I live in washington, and there is no personal state income tax, I have to have an accountant look at what are the best way to handle things.

Having a job this year will also confuse things, I spent the begining of this year trying to slimplify stuff for this year. (yes leader i said a job, i took it in december and have to say, it is more fun than I could have imagined.)

Chet

If you choose a corporation and you're taking out virtually all of the earnings, you'll probably want an S corporation rather than a C corporation (which is the default if you don't declare yourself as an S corporation). With a C corporation, you'll be taxed twice: once on everything that the corporation earns, and again on everything you withdraw from the corporation. With an S corporation, all the earnings are passed through to the owners and taxed on their returns. There are other implications, though, so talk to a good tax accountant.

If you're going to be in business for yourself, you have to have the discipline to save for the tax man, put money into retirement, etc. Depending on what you earn, the 50% that Scott mentioned might be a bit high since the self-employment (social security) tax drops out after about $90,000 in taxable income, but it's not far from the mark. Don't forget that you can (and should) put up to 20% of your earnings (up to a total contribution of $41,000) into an SEP IRA. Also, consider using some of your earnings to help others through charity. The IRA contributions and charity will also help lower your taxes. Between taxes, retirement and charity, 60-80% of your earnings are already spoken for. At least they are for me.

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Michael Coley ABestWeb.com Admin and Amazing-Bargains.com Founder

Merchant Training 101:NEW! NY Tax Solution | Get The Most Out of ABW | Merchant Best Practices Forum | Affiliate Friendly Policies | A Practical Guide to Affiliate Marketing book | Couponing Tips | How Adware Works | My Opinion of CPA Networks

EEWWW, nasty! I'd say "my sympathies" but anyone who thinks a j*b is FUN needs a heckuva lot more than sympathy

Well, I suppose if you previously imagined it being as fun as sitting on a massive fire ant hill, it probably would end up being "more fun than you could have imagined."
If you DIDN'T imagine fire ants, there are sure to be some qualified psychiatrists in your area that could help you regain a healthy j*b-aversion

Either that or an algo change in your favor at any SE big enough to count!

__________________
Tulip Bulbs
There is no knowledge that is not power. ~Hemingway

I have a full-time day job and do AM on the side. To cover the taxes owed from AM, I have my daytime employer take extra taxes out of my paycheck. That way, I don't have to deal with the hassle of quarterly taxes, and I can always change my withholdings if my AM income fluctuates (which it does) or if I need a little extra cash one month. Not the solution for everyone, but it works great for me.

Still, I end up owing at the end of the year.

Michael

Leader, I have a job for an entertainment company. Some of what I am "forced" to do is things like play games, read comics, watch movies and eat (i had forgotton how much eating happens at a job), and the rest of my job is creating those things (minus the eating). Something I could not have done on my own (again minus the eating, i have always been a little too good at that, even without free lunches).

EmDub, since now is not the time to bug my accountant, I am curious, how do you have your employer withhold more? Is it you can just specify an amount, or do you just change the number in the W2? I hate having to write the check to pay quarterly, I almost always forget to.

Chet

Chet,

Just fill out a new W-4 with your employer. Select Single, 0-Deductions, for your withholding category. (Doesn't matter if you're married, you can pick anything you want as long as you pay in enough taxes). That will take out the most federal income tax. If that is not enough, you can also indicate an extra dollar amount that you want to have withheld from each check.

(This is the way I did it before I quit working for other people). Now I just do it with the paycheck I write myself from the corporation.

When I worked, I had my employer withhold extra, too. On your W-4, you can request an additional amount to be withheld.

__________________

Michael Coley ABestWeb.com Admin and Amazing-Bargains.com Founder

Merchant Training 101:NEW! NY Tax Solution | Get The Most Out of ABW | Merchant Best Practices Forum | Affiliate Friendly Policies | A Practical Guide to Affiliate Marketing book | Couponing Tips | How Adware Works | My Opinion of CPA Networks

Like others have said, just change your W-4. I'm married with 2 kids, but I claim single/0 dependents and then specify an additional dollar amount to be deducted. In my case, it's easy to change, since my employer has it available online.

Michael

Thanks a bunch for all the helpful information.

I guess I have to quickly learn some discipline and put money away. Half my profits going to the tax man seems outrageous, but considering the chunk the IRS and friends have taken out of my paycheck in the past, I bet that figure is close. I set up an appointment with a tax accountant to get more info.