Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Jun 23

    Question: Like many students, I am looking forward to some time off from school and perhaps a summer job. What are the most important things I should know before I get that first job?

    Answer: Here are seven of the most important tips I could think of:

    1. Taxpayers fill out a W-4 when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. Taxpayers with multiple summer jobs will want to make sure all their employers are withholding an adequate amount of taxes to cover their total income tax liability. To make sure your withholding is correct; visit the Withholding Calculator on IRS.gov. If you don’t expect to owe taxes, then you can choose to write “exempt” on the W-4 and not have any taxes withheld.
    2. Whether you are working as a waiter or a camp counselor, you may receive tips as a part of your summer income. All tip income you receive is taxable income and therefore subject to income tax.
    3. Many students do odd jobs over the summer to make extra cash. Earnings you receive from self-employment are subject to income tax. These earnings include income from odd jobs like baby-sitting and lawn mowing.
    4. If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for Social Security benefits. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security and Medicare taxes withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.
    5. Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.
    6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as a self-employed for federal tax purposes if you meet the following conditions:
      – You are in the business of delivering newspapers; – All your pay for these services directly relates to sales rather than to the number of hours worked; You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.
    7. Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax.

    Do you have a question for the Taxpert that you’d like to see answered in a future Taxing Times? Or perhaps just an issue you’d like the Taxpert to address? Send the Taxpert a note to Taxing Times, 1050 Hillcrest Rd., Ste A, Mobile, AL 36695 or an email to taxpert@CPAMobileAL.com.

  • Oct 31

    Being self-employed has several advantages: you control your own destiny, you take the risk – and reap the rewards, and you set your own work schedule. One disadvantage that many despise is having their business tax burdens placed solely on them. So let’s look at a few ways to help ease that burden:

     

    • You will make the time to organize and record your business activity in a systematic fashion throughout the year. Don’t wait till the last minute to gather your business documents (including income and expenses). A sure fire way to create stress at the end of the year, or at the tax-filing deadline, is to put-off gathering all the information for someone to prepare your business and personal returns until the last minute. Waiting until the last minute makes it easy to leave out or overlook pertinent information that could potentially help save you money.
    • You will review your gross income and expenses to-date on a regular basis. If you failed to follow the first commandment, then estimate your income using last year’s income as a baseline and adjust up or down accordingly. When estimating expenses don’t forget business meals and entertainment, gifts, equipment, supplies, taxes, licenses, etc. Also, make a separate folder to retain documentation of your home office expenses which may include utilities, rent or mortgage interest paid, insurance, etc. These documents will come in handy when deciding if you should make quarterly tax estimates.
    • You will set aside money to cover your tax obligations. Self-Employed individuals often ask, “How much should I set aside for taxes?” Each tax situation is different, but as a rule-of-thumb we suggest setting aside approximately 30% of your income to cover federal, state, and self-employment taxes. The best way to do this is to create a separate bank account and deposit the money for taxes in this account. This can be used as a safe guard; out of sight, out of mind.

     

    The keys to easing this tax burden are good record keeping, staying organized, and periodically setting some time aside throughout the year for tax planning. Remember, we are always here to help answer any of your tax planning questions.