Why do some people pay in taxes and others receive a return?

I'm wanting to have a home business and having nothing but fits on trying to figure out all the income tax stuff. The IRS website isn't really helping me much and I've contacted several people and keep getting different things, as I know I will here but seriously. My mom has a home business and she always has to pay in at tax time. If I had a home business I know I don't have to file up to a certain amount but how do you keep track of all that and claim it? Would anything be returned or would I have to pay in. I'm wanting a home job but not sure about all the tax stuff. Please help and thanks mucho!!!!

When you prepare your return, you figure your tax liability without regard to what you've already paid in. Then if you paid in more than enough to cover what you owe, you get the extra refunded to you - if you didn't pay in enough, then you have to pay the balance.

If you have a home business that's your only income, you don't have to file unless you made $400 or more. If you made more than that, you pay 15.3% self-employment taxes (for social security and medicare), and then might also owe income taxes depending on how much you made.

Ask your mom to explain how she records all of her financial information. Your numbers will be different, but the method will be the same if she's filing correctly (Schedule C). Whether you get a refund or owe depends on so many factors.

The tax law is 8 times the size of the Bible.

It depends on your mom's tax situation and the legal status of the home business. It sounds like your mom has a sole proprietorship (she the one that owns the business). In that case the income she receives from the business is taxed as regular income (so she would have to pay taxes on every dollar she makes).

To help keep track of your finances I recommend getting small business software like QuickBooks or MS Money. They make tax time easier and help you keep better records.

If you run your own business you must file quarterly tax estimates and pay the tax. There is a penalty if you owe over a certain amount which I believe is $1000.

The estimate forms come with tables to help you figure the amount to pay.

Knowing what the net income will be is difficult when running a home business due to the various business expenses that are deductible.

Have you noticed the Federal income tax deduction on your pay statement? That is the amount you pay in throughout the year. If it is more than your actual tax liability, you get a refund. If it is less, you have to send the rest in with your return.

I favor ending all withholding and requiring everyone to write a check to the IRS every payday. It we actually saw the money we send to the IRS, more people would be concerned about how the government spends the money some of us don't realize they are taking from us.

CORRECTION: I actually support the FairTax plan. ending withholding is a step that will never happen. If it did, it would cause MASSIVE support for REAL tax reform.

Go to IRS.GOV and in forms order yourself a Pub 17 and read it. It will give you a lot to think about. Next I would advise you to visit with somebody who has a business like the one you wish to start. Ask them how they set up their spreadsheet and do their balance sheet. A hands on show and tell is much easier than trying to explain something. I have done taxes for 36 years and long ago quit trying to explain things. Two college degrees and 36 years of experience cannot be condensed into several sound bytes that make any sense. Everybody has a different starting point and level of knowledge in their brain, and lets face it; taxes are complex to the max. I sometimes feel like I must not be normal as I understand tax matters and find them fun and enjoyable to work on. I have a friend who is a nuclear physicist and has build hydrogen bombs for the government for years; he can't figure out taxes; and that is typical of many people.

Just be thankful you don't live in Canada...here's the best description I've heard of how our oppresive tax system works...

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do:

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?' They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded
to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20,"declared the sixth man. He pointed to the tenth man," but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!"

"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get
anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed. For those who do not understand, no explanation is possible.

We all pay taxes. Even if you get a refund you have paid. Even if your income tax total is zero, there are taxes embedded in the prices of goods and services. Support the Fair Tax bill. It is the best tax reform proposal. It eliminates the income tax, and all those embedded taxes, as well as payroll taxes, etc. It eliminates the IRS. It replaces all those taxes with one simple national sales tax. It untaxes the poor with a prebate at the beginning of each month. The prebate covers the taxes on necessities up to the poverty level. It was put together by economists, not politicians. Look into it. Just google The Fair Tax (H.R.25/ S.1025).

Enter Your Message or Comment

User Name:
User Email:
Post a comment:

Archive: Forum -Forum -Finance - Links - 1 - 2 - RSS - All RSS Feeds
The Causes and the Results. 0.204
Copyright (c) 2011 Financial Crisis Tuesday, May 29, 2012 - Terms of use - Privacy Policy