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  1. #1
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    I've heard that almost 50% percent of your online earnings goes to IRS?

    Just curious.

  2. #2
    Chick with Brains Tracy's Avatar
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    Not true. It depends on the tax bracket one is in.

    In 2002 the lowest tax bracket is if taxable income is under $12,000, the tax rate is 10%; and the highest tax bracket is if the taxable income is over $307,050 then the tax rate is 36.6%.

    Taxable income is the amount left after deducting personal exemptions and other allowable deductions.

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  3. #3
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    <BLOCKQUOTE class="ip-ubbcode-quote"><font size="-1">quote:</font><HR>how much tax do you pay in US?
    Posts: 21 | From: USA
    <HR></BLOCKQUOTE>





    Too much.

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    The Newer Nicer Joseph

  4. #4
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    <BLOCKQUOTE class="ip-ubbcode-quote"><font size="-1">quote:</font><HR>the highest tax bracket is if the taxable income is over $307,050 then the tax rate is 36.6%.<HR></BLOCKQUOTE>

    I need to move to the US.. we pay 50% here

  5. #5
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    You have to keep in mind that we in the U.S. aren't just paying income tax - there's also state tax, homeowners pay property tax and everyone pays sales tax. There are also various and sundry other taxes depending on how you make your living or your bad habits (cigarette and alcohol tax).

    When you start adding all the taxes up from everywhere, the total starts looking like 50% unless your income is close to poverty level. But yeah, as far as the IRS goes, the percent depends on your tax bracket.

    J

  6. #6
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    You pay tax on it before you spend it, you pay tax when you spend it, the store you spend it in pays tax on it, the employees and suppliers they pay it to pay taxes on it, then pay more when they spend it, and on and on and on.

    Kinda like reverse MLM engineering. Gov't winds up with 99.999999999999% of the money without anybody noticing it.

    All around the mulberry bush the monkey chased the weasel

  7. #7
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    We don't just pay 50% in income tax.. we also pay 10% gst on all goods and services.. there are also import taxes adding to the cost of everything.. then there a triple tax on superannuation (in, whilst in, and out), capital gains taxes, company taxes, banking taxes, assorted levies, etc, etc.. Maybe Vanuatu is the go..

  8. #8
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    TK,

    I am not sure how it may be in your country, but in the US there are clever ways to make your tax burden less.

    In the US, I am in the 36% tax bracket, however, I take a large percentage of my earnings from the Internet and my engineering firm and invest in real estate. There are many legitimate tax shelters in this market and in the end Uncle Sam gets about 30%.The 6% difference is well worth the effort .

    In the US one of the best "tax shelters" is the owning of your own home. You can write off a percentage of the mortgage payments, and home improvement/addition costs. Further, the IRS allows you to deduct as expenses, the cost of having a home office in your home.

  9. #9
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    fcol,

    We also have many different ways of not parting with everything to the tax man.. negative gearing investment homes, paying the wife a bucketload of money just below the top tax bracket for emotional support for the business , trust funds for the kids, leasing very expensive cars, etc, etc.. it still doesn't change the fact though that you still hand over a hefty chunk of change. I really find it ironic that the harder you work, the more they penalise you..

  10. #10
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    <BLOCKQUOTE class="ip-ubbcode-quote"><font size="-1">quote:</font><HR>Originally posted by fcol:
    Further, the IRS allows you to deduct as expenses, the cost of having a home office in your home.<HR></BLOCKQUOTE>

    You can only deduct that IF that office space is used ONLY for business.

    So if your computer is in you family room or your own bedroom you technically would have a hard time counting it legally. (If you ever had to prove it that is)

    Unless you measure off the space it occupies and do not use that space for anything else that doesn't pertain to business.

    You have it made if the computer is in a room of its own made into an office area.

    BUT you can count a percent of your electric, ISP hookup, 2nd phone line if you have one, and all your other expenses like printer paper, ink, etc. Also you can depreciate your computer too! I get a new one every couple years so I get that break yearly. Then I take the old computer and load my fax software on it and put it into the next bracket of depreciation under office machines.



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  11. #11
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    Self employed people get to deduct expenses...like webhosting expenses, computers. Of course, you also have to pay self employment tax (social security).

    Since I am in this to fund content sites, Income barely squeaks above expenses. I actually wish I was paying a lot of tax.

  12. #12
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    Yep - the Self Employment Tax in the U.S. is 15.3% of income from self employment up to $89,900. So, I t can be as much as $13,754.70.

    So, if you earn that amount, you're probably in the 27.5% income tax bracket. If you add the 15.3% Self Employment Tax, you're up to 42.8%. Then, depending on what your state rates are, you well could be approaching 50% on your earnings that fall into the higher brackets.

    Anyone in that category should seriously consider setting up a SEP IRA. You can set aside and get a Federal deduction for up to 25% of your Schedule C income or $40,000, which ever is less.

    "If I'd known I was going to live this long, I'd have taken better care of myself." Bob Hope

  13. #13
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    Yep Potent Mix...

    The SEP IRA is the only way to go for those of us in the higher (not highest of course) income bracket. Frankly, those out there who constantly complain that the wealthy get off without paying taxes are simply uninformed. Granted, there are numerous write-offs (way too many since 2000 if one adds in depreciated losses in the stock-market), but the taxes are still entirely out of sight.

    Obstinatedon

    You must not lose faith in humanity. Humanity is an ocean; if a few drops of the ocean are dirty, the ocean does not become dirty.

    Mahatma Gandhi

  14. #14
    Chick with Brains Tracy's Avatar
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    <BLOCKQUOTE class="ip-ubbcode-quote"><font size="-1">quote:</font><HR>So, if you earn that amount, you're probably in the 27.5% income tax bracket.<HR></BLOCKQUOTE>

    If you're in that tax bracket, why haven't you incorporated as a Subchapter S corporation? Then your income falls through to your personal taxes as a dividend and you don't have to pay the FICA on it.

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  15. #15
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    Hello Tracy...

    You said:

    <BLOCKQUOTE class="ip-ubbcode-quote"><font size="-1">quote:</font><HR>If you're in that tax bracket, why haven't you incorporated as a Subchapter S corporation? Then your income falls through to your personal taxes as a dividend and you don't have to pay the FICA on it.<HR></BLOCKQUOTE>

    While that might indeed be a good idea for some, the fact is that incorporating; especially under the auspice of Subchapter S, requires a great deal of effort as it pertains to compliance. Many should think about the ramifications of this move prior to doing it.

    Obstinatedon

    You must not lose faith in humanity. Humanity is an ocean; if a few drops of the ocean are dirty, the ocean does not become dirty.

    Mahatma Gandhi

  16. #16
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    Tracy - I'm skeptical about your "dividend" angle. Here are the tax implications of an S Corporation as I understand them:

    1. An S corporation is taxed like a partnership.

    2. Each shareholder reports the profit and loss on his or her individual federal and state income tax returns.

    3. Shareholders must pay self-employment tax and estimated taxes.

    4. With some exceptions, the S corporation itself does not pay income tax.

    5. Profits are taxed only once.

    If its taxed like a partnership, how can it pay divdends?

    "If I'd known I was going to live this long, I'd have taken better care of myself." Bob Hope

  17. #17
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    Bingo!, Potent Mix!

    Obstinatedon

    You must not lose faith in humanity. Humanity is an ocean; if a few drops of the ocean are dirty, the ocean does not become dirty.

    Mahatma Gandhi

  18. #18
    Chick with Brains Tracy's Avatar
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    Perhaps "dividend" was the wrong term. Nevertheless, the income falls through to my personal taxes on Schedule E, and I do not pay self-employment tax on the income. It is listed as nonpassive income from Schedule K-1. On the otherhand, partnership earnings reported on Schedule K-1 are subject to SE taxes. I found this at the IRS site:

    <BLOCKQUOTE class="ip-ubbcode-quote"><font size="-1">quote:</font><HR>S corporation shareholder and officer. If you are a shareholder in an S corporation, your share of the corporation's earnings are not subject to SE tax, even though you include them in your gross income for income tax purposes.

    If you are a shareholder and also an officer of an S corporation and perform substantial services, you are an employee of the S corporation. Your payment for services is subject to withholding of social security and Medicare taxes and is not subject to SE tax, regardless of what the S corporation calls the payments.<HR></BLOCKQUOTE>

    When my S Corporation pays me a salary, it deducts Social Security and Medicare, and pays the other half. However, the net income I earn from the corporation that falls through to my personal income tax is not subject to SE tax.

    Another thing to keep in mind, is knowing when to convert an S Corporation to a C Corporation. It's been a while, but C Corporations pay a flat tax on earnings. Last time I looked it was 15%. Certainly, there is a point when it is better to be a C Corporation than an S Corporation. For instance, if you are in the 36.6% tax bracket, it could be better to pay the flat C Corporation tax, and then pay the stockholders a dividend, rather than have all the income fall through to you as the stockholder of an S Corporation at 36.6%.

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  19. #19
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    Oh my Tracy...

    You might want to have your accountant take a little better look at both those Schedules and how they interact. I am not a CPA, nor a tax advisor, but I am an officer of three corporations; plus my own PC.

    Having lived through three audits (and once through cancer surgery), I would almost prefer the latter.

    Obstinatedon

    You must not lose faith in humanity. Humanity is an ocean; if a few drops of the ocean are dirty, the ocean does not become dirty.

    Mahatma Gandhi

  20. #20
    Web Ho - Design B!tch ~Michelle's Avatar
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    I stand corrected on the space you can claim in your home for business.

    You ARE allowed to measure the space that you use for business, divide it by the total square footage of you home to find out what percent is used for business, then you can multiply it by the number of hours per day that space is used for business purposes.

    ~Michelle

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  21. #21
    Chick with Brains Tracy's Avatar
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    <BLOCKQUOTE class="ip-ubbcode-quote"><font size="-1">quote:</font><HR>Originally posted by fcol:
    Further, the IRS allows you to deduct as expenses, the cost of having a home office in your home.

    Originally posted by Michelle:
    Unless you measure off the space it occupies and do not use that space for anything else that doesn't pertain to business.<HR></BLOCKQUOTE>
    Or you have an S Corporation, which writes you a monthly check for rent. My S Corporation writes me a monthly check for $500 rent of office space in my house. I report $6,000 per year in Rental Income (without paying SE tax on it) on Schedule E; against that I deduct a percentage of my maintenance and utilities, property taxes, insurance and depreciation of a percentage of my home each year as another deduction against that income.

    Let's see, last year the corporation recognized a $6,000 rental expense against income, I deposited $6,000 in my personal checking account. After the deductions, I paid income tax on $1,798.

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  22. #22
    Chick with Brains Tracy's Avatar
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    Obstinatedon,

    I'm confused about what you're saying. IRS specifically says that net income from a Sub S Corporation is not subject to Self-Employment Tax. The quote I posted was copied directly from the IRS site.

    If the corporation writes me a check for services rendered, it deducts social security, medicare and income tax withholdings. It then doubles the FICA and sends it to IRS.

    For example. If the corporation pays me $2,000 per month salary. It would first deduct $124 social security, $29 medicare, and $270 in federal income tax withholding, and cut me a net check for $1,577. It would send IRS a check for $576 ($248 social security, $58 medicare, and $270 income tax). At the end of the year the corporaiton would issue me a W-2 for those earnings and deductions.

    At the end of the year, the net income the corporation earned would be reported to me on Schedule K-1. The earnings on my W-2 are subject to employment taxes, which the corporation and I dutifully paid. The earnings reported on Schedule K-1 are not subject to employment taxes.

    Where is the error in my thinking?

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  23. #23
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    Forgive me Tracy...

    Now I fully understand what you are saying, and I do the same thing. For whatever reason, I misread your previous post to say that you would be entitled relief from wages provided you reported them as corporate dividends.

    Obstinatedon

    You must not lose faith in humanity. Humanity is an ocean; if a few drops of the ocean are dirty, the ocean does not become dirty.

    Mahatma Gandhi

  24. #24
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    Am I correct in that most people (w/ no corporation involved) have to pay SE tax on their affiliate income, generally speaking?

  25. #25
    Chick with Brains Tracy's Avatar
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    bit,

    Yes. If you earn more than $400 affiliate net income, personally (combined with all other income from independent sources), you would be subject to paying Self Employment Tax.

    All,

    Please do not take my previous posts as advocating that everybody should run out and start up a corporation. Everybody's situation is different. There are costs involved in operating a corporation, as well as other considerations.

    You should look at the big picture of your individual circumstances to determine if there is an overall benefit to you in operating your business as a corporation as opposed to a sole proprietorship.

    ---
    Judge your success by the degree that you're enjoying peace, health, and love.

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