Separate names with a comma.
Discussion in 'Money Talk$' started by SaggyWoman, Dec 27, 2007.
Best way to distinguish the difference?
Self employed people do not always own businesses. Imo, most don't own businesses.
This is your typical example: Our local newspaper hires independent contractors, they work on their own yet still receive pay for every newspaper subscription they sell. At the end of the year, they are presented with a 1099 form, it is their obligation to report all income and pay taxes on income earned since the Newspaper didn't do it. Self employed people pay their own Social Security also. They must handle their own bookkeeping. Similar to business owners, they are to keep track of write off's such as mileage, gas, office expenses etc...
Frequently, they are known as independent contractors (a.k.a self employed). Usually, imo, being self-employed without owning your own business is a bad idea. Almost the same amount of leg work to earn only partial profits.
As an Independent contractor, you set your own hours. In fact, tomorrow, I hope to interveiw for a sales job (in radio), and I will request to be an independent contractor - but I do it thur my business - Tutton enterprises.
So when they pay me, they do not take out taxes.:thumbs:
What I didn't realize until recently was how much sense it makes to have a small business of some kind because of the tax advantages.
If you have a part-time, home-based business....whether it be consulting, selling stuff on eBay, direct sales (like selling Avon or Mary Kay), network marketing, child care....basically any legitimate business where you are honestly TRYING to make a profit.....you can put thousands of dollars in your pocket every year simply because of the tax deductions, even if your business doesn't make a dime. (I'm talking about legal tax deductions...nothing sneaky).
There's some great information at this website (Yeah, the guy is trying to sell his book and tax course, but there's a lot of free information on his site).
For example, my wife and I both work full-time jobs. But we've got a little part-time business that we work on in the evenings with a company called Watkins (they sell cooking, cleaning, personal care and nutrition products from a catalog). Even though we didn't make very much money in our business this past year, we're going to get several thousand dollars back from the income tax we paid at work, simply because of the deductions we can take for having a small business. In other words, a lot of the expenses we would have had anyway, even if we didn't have a small business, are now deductible business expenses.
I was reading something recently written by Sandy Botkin (Former IRS agent, expert on business tax), and he said that someone would have to be crazy NOT to have some sort of home-based business, simply because of the tax advantages. Knowing what I now know, I'd have to agree with him.
Half the self employed people probably work under the table. It is common for a small contractor to give two estimates - with and without paperwork.
I work very part time right now. And after my business expenses and after my allowed deductions I had a -0 income and they still want me to come up with self employment tax or more then I make in a month. So so wrong.:BangHead:
I'm not sure you're doing your taxes right.
True Brian! Anyone that don't have a small business should start one. Although you can only claim a loss for three years before the IRS considers it a hobby, it's still very easy to make enough of a profit/loss to offset your taxes.
I once read a book about becoming a millionaire and the main point of the arthur was not to just MAKE money, but the biggest way to create wealth is to reduce your taxable income. A good friend of mine is an accountant an he says the same thing. Reducing your taxable income make you more money in the long run.
There are any number of businesses to get into with little or no cost and then you can claim a world of deductions. I have had my own company since 2003 and for the first three years it has gained me about $1200 extra in my refunds. Now, the company is older than 3 years, between the money I make and the deductions, I make an extra $400-$500 in my refunds.
In my 23 years of being a general contractor I have only had one person ask me about doing that.
Evidently, you are not doing your taxes right. Self Employment tax is figured on the amount of income that you earn in whatever business you may be involved in. If there is no income then there is no self employment tax.
If by "allowed deductions" you are talking about those allowed on your 1040 then I can see what you are saying. When you start figuring your SS tax you don´t start with the amount you ended up with after those deductions. You have to start all over again with the amount on your 1099 or whatever form was used to report your income to the IRS. Those same deductions don´t apply.
No you don't. You report your expenses, etc on your schedule C thus deducting them from the amount reported on your 1099. What ever profit you are left with is reported on you schedule SE for determining what your SS tax is. Zero profit equals zero SS tax. :thumbs:
There is a huge difference between being self employed and owning your own business.
All professionals who work for themselves like doctors, therapists, etc. are self-employed. So are all informal traders. I too am self-employed in that I teach music privately. Whe you are self-employed you are the the sole proprietor of the business and in fact you are the business. It is your skills, personality, knowledge and experience that form the business. You manage all aspects of the business. When you don't work the business does not generate income. The harder you work the more you earn. that is why most self-employed people work long hours.
Owning a business means you have a stake in an income generating entity outside of yourself. A good example of this is a franchise like Macdonalds. The business is self sufficient outside of your input. You have a manager who you pay to run it for you, you can take a salary from the business or a profit share or both. You can go on a holiday and it will earn you income even wen you are not there. Obviously you have to oversee it or your employees can steal from you or mismanage it but basically you get to benefit with far less input.
A business is the next economic level up from being self-employed, which is what I'm aiming for now. Below it is being an employee and above it is being an investor.
Hope that helps...
Those who work under the table are not contractors. They are crooks.