Tax/Biz Q&A

Status
Not open for further replies.

Sharksfan

New member
May 28, 2009
1,086
22
0
WI
I'm a total n00b affiliate marketer. Hell, I didn't even abbreviate it as AM. That's how damn n00b I am.

That said, I have been in offline business for 12 years. I've been sued, had the FBI walkin and want to review our files (totally not our fault - same company name as another company), had the IRS garnish wages on contractors - if it happens, I've pretty much seen it.

If you're making cash doing AM - anything over $600/ year (I'm setting the bar low here...) - you might want to read this. Ask me questions too.

Taxes and Quarterly payments: If you make money as a 1099 (contractor), business owner, sole prop, parter in a corp, etc - you need to pay quarterly payments. Pretty much any time you are making cash and NOT working for someone else.

You are supposed to pay in 25% of your tax payment for the year quarterly. This applies to both state and federal. This can get tricky because you might not make shit until December and then make bank like crazy mad for 30 days. If you didn't pay in the first 3 quarters the IRS will often penalize you for not paying taxes on time. You have no choice but to bend over and take it.

It gets even more fun if you "do business in" a state they may want you pay taxes. For example - I was doing work for my company which was owned and located in ND. I was on-site in Minneapolis doing work for the Federal Government. The state of MN made me pay income tax. Fuckers. The lines with computer related work are getting more gray all the time. Hire a CPA - it's worth it.


How can you decrease tax liability? This is easy - get some expenses. Here's a quick list of the things you can expense in the AM business - but you have to have receipts - originals - always.
  • Home internet service
  • Home phone (or cell - or both)
  • All outsourced work
  • Any travel costs (ie, go to the conventions, it's an expense)
  • Office supplies
  • Anything remotely computer related, including subscriptions to websites
  • Business magazine subscriptions - and if you're selling "teh berries" then any health/fitness magazine subscription you need for "research".
  • Office space as a % of your total home payment
What else can I do?
I also recommend the following if you are doing this long term:

  1. Hire a lawyer and CPA. Have them meet for #2 below.
  2. Have a lawyer create an LLC or S-Corp for you - they need to decide which fits your situation best.
  3. Become an employee of the Corp
  4. Pay yourself a salary that is as low as possible. Usually the same amount you'd have to pay a code monkey to do your job (for AM, that's probably $50-100K depending on where you live).
  5. Take all extra cash in distributions/dividends
  6. For bonus points have your lawyer draft a lease for your home office space from you to the corp for $1000/month. That $12,000 yearly "expense" from the business will transfer the profit to you personally instead of the corp. Since it's rental income it's taxed very low.
You do #4 because the lower your salary is the less FICA you have to pay. Distributions and dividends are still taxed but at a total rate of 15.9% less. That adds up in a hurry.

I just had a kick-ass year. What else can I do?

The IRS says you are "paid" when you receive a check. So even if you don't cash it you have to count it as income.

Let's say you had a banner year. You came, saw, kicked ass, and took names. But you know you're having surgery or vacation or who knows what the fuck the next year and it won't be so great.

Call up your vendor/AM manager/whoever and hold payment until the new year if possible. I think you can do this for 90 days, so you might not get paid for a while (you didn't spend ALL that mad AM money on hookers and blow did you?).

They might need to pay you before the end of their fiscal year. Have them send you a check this time - mailed on the last business day of the year. If necessary take vacation so you can't check the mail. That way you won't "receive the check".

There's lots more things you can do. I'll stop there. All of the above is legal by the way but don't hold me responsible if you don't get a lawyer and a CPA and you try this.
 


This is definitely ultra important. If you're evading your taxes on the sly, you're gonna get an ass popping at some time or another. There's all kind of financial benefits attached to registering a company, etc etc...

There's a lot of international affiliates on the board though, and taxation requirements are different depending on where you're living.

Personally, I don't think this is the sort of shit anybody should be taking lightly. Go out there and get yourself a financial adviser and an accountant if it's spiralling out of control and you don't have time to keep track of your books. They might cost you money, but they'll save you money in the long run.
 
They also save you time. Tell your CPA you want a flat rate for the year and you're going to send him all your stuff. Put everything in a big envelope and drop it off once a month or whatever.

If you're outside the US I can't help you - but I imagine the rules everywhere are just as insane as here.
 
  • Like
Reactions: transistor
Proceed with caution on the home office deduction. Make sure you fully understand all of the tax implications and do your own research. For example, Bankrate articles.

See hxxp://www.bankrate.com/finance/money-guides/home-office-can-have-hidden-tax-costs-1.aspx
 
Quick notes to the above...

Federal is 25% each QTR for 2009 estimates

CA is 30% for Q1&Q2 and 20% for Q3&Q4

Also, if you recieve all of your income at the end of the year, you can avoid the underpayment penalties and interest. *See Federal Form 2210 and note page 3

Don't forget... Q2 payment is coming up on 6/15
 
if you're paying rent to your corp wouldn't that mean that the corp owns the home and not you personally, which would then mean you risk losing your home if you're sued?
 
if you're paying rent to your corp wouldn't that mean that the corp owns the home and not you personally, which would then mean you risk losing your home if you're sued?

No - the corp is paying rent to you for your use of the portion of the home for business. It's the same as if you use your car for work trips. You can get re-paid for that. But there are exceptions of course and legal counsel + CPA help for this. Trust me, it's worth it.

(Unrelated side note. Don't be afraid of people who say they have a lawyer. Be VERY afraid of people who refer to their lawyer as "Counsel".)

This works well in areas where people have their office in very defined areas - sometimes in an outbuilding, a separate floor (room above garage) and all that.

As with everything ALWAYS check with a CPA. Any/all of these things are dependent on your own situation.

Two people who are neighbors with the exact same job and income might have wildly different tax liabilities for example. It happens.
 
This is great information. Thanks. I'm going to an accountant tomorrow!

Not to nitpick - but make sure you're dealing with a CPA and not just an accountant. There's a difference.

In the ideal world you use a tax attorney but they are NOT cheap.
 
Just to chime in with some info specific to Australia: Be careful when claiming your home office as an expense if you own your own home. When you sell, you won't get the full benefit of the capital gains exemption on your house it will be pro-rated to the amount you claimed as a business expense on your house.

For example, if you sell your house for $100k more than you bought it for a few years earlier, normally you wouldn't pay tax on this cap. gain if the house was your primary residence (PPOR). If you have been claiming 20% of all outgoings (mortgage, heating, electricity, etc.) because of your home office, you would have a captial gains tax liability of 20% of 100k, or 20k. If you have owned the house for more than a year, you get a 50% discount so it gets cut to $10k. You then pay tax on the $10k at your marginal tax rate (ie. $10k gets added to the amount you earned that year).

So is it worth claiming expenses for a home office? It depends on your situation. If you own a home that you expect will have a massive cap. gain then it's not worth it. If you live in the burbs with a 95% mortgage on a $400k house, then it's probably worth it.

Also, if you earn more than $100k, the ATO will put you on monthly tax/GST payments rather than quarterly.. which sucks the big one.

But as always, consult an accountant blah, blah, blah.
 
I talked to the CPA today. Looks like I'm going to be starting an S-Corp to save thousands in self-employment taxes. He said I can deduct business expenses related to my job, like conferences, books, seminars, and office equipment, but how creative can I get? Do you guys deduct every meal you eat? Do you deduct vacations by saying you're there for research? How risky is that?
 
This can get tricky because you might not make shit until December and then make bank like crazy mad for 30 days. If you didn't pay in the first 3 quarters the IRS will often penalize you for not paying taxes on time. You have no choice but to bend over and take it.

First, thanks for the helpful advice in this thread.

My issue is... I did not qualify to pay estimated quarterly taxes in the first quarter because I didn't make enough profit. However, I just started paying taxes beginning this second quarter based on estimates so far.

So are you saying I may be penalized for the payment that the IRS said I didn't have to make for the first quarter? I don't understand why the IRS would penalize a business for improving its profits beyond its expectations.

Also, if that's true, does anyone have any idea how much that penalty might be (%)?
 
I talked to the CPA today. Looks like I'm going to be starting an S-Corp to save thousands in self-employment taxes. He said I can deduct business expenses related to my job, like conferences, books, seminars, and office equipment, but how creative can I get? Do you guys deduct every meal you eat? Do you deduct vacations by saying you're there for research? How risky is that?

You can get pretty creative but don't go too overboard with it.

Take for example my business partners for my offline job. Every time we go anywhere and do anything it's a "meeting" and we expense it.

If you take your wife and kids to Disneyland though and meet one client for an afternoon and then try to write off the whole trip you're pushing it.

Remember - you always have to have the original receipt. Your best bet with this sort of thing - keep in mind the business partner meeting - is to make a note on the receipt like "Operations meeting 6/12/09".

At the end of the day you probably won't get audited. But generally speaking if you DO get audited one of two things happens:

1.) The IRS will dis-allow some tax deductions and force you to re-file a year or more. However, if you have declared your actual income correctly you will not get in any legal trouble - there may be a small fine.

2.) If the IRS finds you hid income or tried to get out of paying W2 taxes when you should have - you may be screwed royally.

All of my knowledge is obviously specific to the US and the states I've lived in.
 
So are you saying I may be penalized for the payment that the IRS said I didn't have to make for the first quarter? I don't understand why the IRS would penalize a business for improving its profits beyond its expectations.

Also, if that's true, does anyone have any idea how much that penalty might be (%)?

Yes, I am saying exactly that. But that's usually if you only make 1-2 payments over the year. If you make 3 out of 4 you're probably going to be fine.

In the year where I had a great Q4 and lousy Q1-Q3 and only paid in once I got penalized a few hundred bucks - no huge penalty.
 
I set up an S-Corp through legalzoom last night. I'm kind of nervous about all the bookkeeping I'll have to do. There are so many forms, I'm afraid I'll miss one. Plus, I'm starting grad school in the fall and I don't want to spend a lot of time doing them... but, by forming an s-corp, I'm going to be saving tens of thouands per year.
 
I set up an S-Corp through legalzoom last night. I'm kind of nervous about all the bookkeeping I'll have to do. There are so many forms, I'm afraid I'll miss one. Plus, I'm starting grad school in the fall and I don't want to spend a lot of time doing them... but, by forming an s-corp, I'm going to be saving tens of thouands per year.

Farm it out. It's not that expensive and it's worth it.

Find a firm that offers bookkeeping services. You're basically paying a lower-end-person to do the data entry/categorization of expenses and income.

Then a CPA reviews it with you as often as you want (which is once a year at tax time for most people).
 
Status
Not open for further replies.