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  1. #16
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    Actually, most of what you hear regarding the tax law are truisms - with very little basis in fact.

    The $600 limit, is the amount after which a payer is required to report the payments to the IRS (in many but not all cases). This does not mean that an amount under $600 is tax-free to the recipient.

    In fact, according to the tax law, you are required to report ALL income, regardless of the amount.

    In practice, many people ignore this fact. It's your call, of course, but please don't feel that you're "fine" because the amount was under $600. I've seen people get caught for less than that - which means besides the tax, they would now be obligated to penalties and interest as well.

    (Again, this is relative to US tax law only)

  2. #17
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    If you charge more than $600 to a business and you are not a Corp, the client needs to file a 1099 statement and provide you with a copy. The IRS will cross-reference those statements against what you report. You are liable for Social Security (6.4% withhold + 6.4% match), Medicare (1.45% withhold + 1.45% match), Federal income tax withholding and state income tax withholding. Depending upon the amount withheld, you'll need to make periodic deposits of these taxes - the IRS doesn't like waiting until the end of the year for a big lump sum. If you do not report, interest and negligence penalties will likely apply as well.

    Start out with IRS publication 15 for starts to get a feel for the requirements.
    Milwaukee Web Designer and SEO Milwaukee Firm specializing in ASP.Net, C#, VB.Net, SQL Server and Access.

  3. #18
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    I'm not trying to split hairs here, since what demtron posted is essentially correct.

    But in the interest of accuracy, the Social Security rate is actually 6.2% (with a 6.2% match), the Medicare portion is 1.45% (with an equal match) for a combined total of 7.65% (with an equal match), or a total of 15.3%.

    However, a self-employed person (anyone who does or should receive a 1099-MISC for non-employee compensation) and reporting their income on form 1040, will not inmost cases pay the 15.3%. In computing your taxable income for Self-Employment tax (the equivalent of Social Security and Medicare), you take 92.35% of the taxable income computed on Schedule C - the form used to report your business income and expenses. This makes the effective rate 14.13%. In addition, one-half of the Self-Employment Tax liability is treated as an 'Adjustment' to income. This further reduces the effective Self-Employment tax. For a taxpayer in the 28% tax bracket, this can reduce the effective rate to somewhere around 12%, although this will vary depending on specific tax circumstances.

    Another important note, is that the Self-Employment tax, as well as Federal and State Income tax (subtle, but different from 'withholding' tax) are computed on Net Income. Net Income being Gross Receipts less expenses and, potentially, certain other adjustments.

    I should also note that depending on your locality, your self-employment income may also be taxable to your municipality (city, town, township, etc).

  4. #19
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    You are correct on the 6.2%. I really should hit the hay tonight.
    Milwaukee Web Designer and SEO Milwaukee Firm specializing in ASP.Net, C#, VB.Net, SQL Server and Access.

  5. #20
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    It's hardly worth mentioning, except for where the IRS, especially, is concerned - every nickle counts!

  6. #21
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    Ain't that the truth, brother! Keep every piece of paper you get, report all your income, but don't be afraid to take a deduction when you know you have it coming.
    Milwaukee Web Designer and SEO Milwaukee Firm specializing in ASP.Net, C#, VB.Net, SQL Server and Access.

  7. #22
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    Quote Originally Posted by demtron View Post
    don't be afraid to take a deduction when you know you have it coming.
    That should be in bold and large print!

    I've seen far too many clients refuse to write-off perfectly legitimate deductions for fear of IRS.

  8. #23
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    yeah according to the tax law you are required to report all income, and it is regardless of the amount...
    Last edited by gnomeontherun; 07-27-2009 at 10:54 AM.

  9. #24
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    Hello everyone,
    I am a freelancer based in India, I was doing freelancer work for a company for more than 2 years and now they want to have me as their offshore resource with monthly pay. According to them and my research I will have to pay US tax, I should have tax id etc.
    The company has to pay their part as well.

    I am not going to live in US, so I am NOT going to receive any benefit by paying tax.

    Is there any work around for this or at least pay very very low tax?

    could someone give some light..


    Thurai of CDLTech

  10. #25
    Senior Coder gnomeontherun's Avatar
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    If you fill out an US tax forms, you have to pay some taxes, unless you don't make enough. It depends on what kind of employee they hire you as, but if you are hired to work and the company is in the US, you pay tax as if you lived here. Until recently, it was impossible to live in one country and work in another, until the internet, so I haven't heard of anything that allows you to not pay taxes just because you don't live there, you also can't work there (even if its telecommute).

    Its probably something you should take up with your company, perhaps better to be an independent contractor rather than employee, or see what other options exist.
    jeremy - gnomeontherun
    Educated questions often get educated answers, and simple questions often get simple answers.

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  12. #26
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    Well, I’m not a lawyer and I’ve only been a freelancer so far but as far as I know you only pay the taxes where you live or do your business, it doesn’t matter where your work is delivered. I also don’t know what kind of agreement you have with the U. S. company but if you’re doing your work in India and deliver it to the U. S. you’re kind of “exporting” the “goods”. I don’t see any reason why you would have to pay U. S. tax. At least I don’t have to.

    However, it would probably be best if you asked a lawyer in your country or your tax office about that. At least what you could do would be an agreement that you are an independent individual/company that gets paid monthly for their services – or something like that.

  13. #27
    Senior Coder gnomeontherun's Avatar
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    The difference is when you are an employee. Like I said, it depends on the arrangement, but if you are officially on payroll as an employee, not as an outside provider, then it will be tricky to figure out the exact details. I have to pay taxes in the US, even though I'm living in Germany, and I have to pay taxes here too. Granted I can get most of it waived as I don't make enough, but there are some that I can't avoid.

    Agreed, ask a lawyer.
    jeremy - gnomeontherun
    Educated questions often get educated answers, and simple questions often get simple answers.

  14. #28
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    Thank you gnomeontherun and VIPStephan,
    I never expected a prompt response.

    Thank you guys

  15. #29
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    I agree with Jeremy , it is better to contact a tax filing expert.

    http://taxfiling.co.in
    Last edited by gnomeontherun; 07-29-2009 at 11:00 AM.

  16. #30
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    I know that I should "consult a tax advisor", but I'm going to ask this anyway to see if anyone else has this situation..

    i am in the US, and a Moderator/Administrator on a British-based website/forum (privately held) and the owner of the site has negotiated sponsorship for the site to a hosting company. That hosting company (also British-based) has agreed to pay some of the Admins on the site a monthly dividend based on Advertising on the site and traffic. That monthly dividend is actually going to go either:

    1) directly into my Paypal account from this British-based company, or

    2) into the owners Paypal account (also British-based) and he will then in turn distribute it to my Paypal account

    Either way, I believe that they will not be distributing money through their payroll department (for such small amounts of money). Now, while I am quite sure that I will not have to file British taxes, what implications do I have on the US side of things? My plan is to move the money I receive through Paypal into my linked checking account.

    I planned to have to claim this income at the end of the year on my regular tax return, and then the Govt (both state and federal) will get their chunk. However, do I really need to set myself up as a company in order to do this, or can I simply claim it as "additional income" on my tax forms? I get a big enough tax return each year ($8k) that this will simply reduce that a bit, so I'm not worried about that aspect, just really wondering if I have to create some sort of "business" to do this. Adding a business tax return onto my regular individual tax return will double the cost of my tax preparation, and that would really peeve me off if that is the case...

    Sorry about the long post, especially being my first on the forum, but I am new to this kind of thing (being paid for moderating a forum) and this seemed like a good place to ask the question. Thanks!


 
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