Offline Web Design Tax Question

Hey all, I've been lurking for a bit here and finally have a question to post.

I plan on doing web design on the side through an offline marketing plan I've put into action. I will be receiving payments either through check or cash only. If I am only predicting net profit of about $4000 for the year, is it necessary to file taxes or can I get away with it? I would be a sole proprietorship, so I'd be paying the personal income tax + the self-employment tax - which is a ridiculous percentage of my profit going straight to the IRS.

You MUST file taxes unless you want to be raped by the IRS!! The interest and penalties are more ridiculous than what you will pay in self employment and other taxes.

Remember that you can write off a bunch of crap. Have a room dedicated to work, then figure out what the % of that room is of your house/apartment in sqft. Then you write off that % in rent, cable, water, insurance and anything else related to your apartment/house except food. Write off hosting, domains, back link services, paper, pens, and anything else you purchase for the business.

At the end of the year (especially your 1st), you more than likely will end up with a loss (business wise) and get a fat ass chunk of change back. My 1st year, I had a loss of about $8000 due to everything that I could write off and got almost that amount back in federal taxes.

PS - Keep receipts
Disclaimer - My personal experience and not professional advice - contact an attorney/tax dude

If you make more than $400 in self employment you are required to file by the irs.

Your business is probably operating a taxable loss, so you most likely wont owe anything, but as always your situation will depend on everything else going on in your life.

I'm a college student filed as a dependent on my parent's taxes, and they are currently providing my housing so I can't write any of that off. The only real expenses I'll have (reseller hosting, freshbooks, etc) will be about 350. Suppose I'll have to look into seeing if it's possible to write off my laptop and stuff that I've already had prior to the business.

Just from some quick browsing it looks like I would be paying 10% personal income plus 15.3% SE... 25.3% is insane, but guess there's no other way!

There are always other ways. Depreciate your equipment.

Short answer is yes.

When you quote your prices keep taxes in mind. For every $100 in revenue I plan for $25 in taxes, that way I don't find myself in a hole come April.

the h3rbalist said:

Just from some quick browsing it looks like I would be paying 10% personal income plus 15.3% SE... 25.3% is insane, but guess there's no other way!

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You'll be only tax once, not twice. Unless you have a corporation.

carlikito said:

You'll be only tax once, not twice. Unless you have a corporation.

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Sole Proprietors pay personal income tax + SE tax.

the h3rbalist said:

Sole Proprietors pay personal income tax + SE tax.

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Agreed. I meant that the income will be only taxed once, I misundestood your comment.

Also your personal exemptions might help you offset selfemployemet taxes.

carlikito said:

Agreed. I meant that the income will be only taxed once, I misundestood your comment.

Also your personal exemptions might help you offset selfemployemet taxes.

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I can't claim personal exemptions because I am a dependent.

I just did some more research though and it looks like I will be able to claim a standard deduction of more than my taxable income. I should probably talk to a CPA to get this straight, but I'm under the impression this means I won't have to pay federal income tax?

If that's the case it'll just be the SE tax, which is apparently 13.3% now. Not bad.

Just as a note, SE tax is going back up to 15.3% for 2013.

If you plan on continuing to make money, incorporate. With proper tax planning, you will have vastly more control over your tax burden.

Like was mentioned above, you need to keep track of and deduct EVERY possible expense of doing business. With only $4K in earnings you can easily bring your profit down to non taxable levels.

If you are going to make any decent amount of profit it is a very good idea to incorporate as an S-Corp. There are numerous reasons why and your tax liability will be much less than self-employment/sole-proprietor if you do things properly.

Welcome to adulthood. You'll be taxed 2-5 times with every dollar you earn.

1. Income Tax
2. Self Employment tax
3. Sales Tax
4. Estate Tax (save your money and pass it to your kids upon your death)
5. Capital gains tax (invest wisely and get taxed again)

Seems like our government would rather have a large low-middle class instead of a thriving upper class. The more you make, the more they take!

Imagine you made $100,000 in a year.

California state income tax (9.3%) + $2059 = $11,359
Federal tax (28%) = $28000
Self employment tax = $12,282

Net income = $48,359

When you spend that money, you get taxed AGAIN at your state sales tax which in California is around 8%.
Sales tax (~8%) = $3868.72 (housing wouldn't be taxed, but all consumer goods are, gas is taxed even higher)

You're left with about $44,000 to spend after you earned 100,000. Welcome to California where the sun shines and the self employed leave for Texas, Montana, Oregon, Nevada and Idaho.