hus works const and I sell avon no taxes taken out how much should we set aside for taxes with 5 kids?

Question

My husband just started a new job and the owner of the business will give him a 1099 at the end of the year and I just started selling Avon with the same situation. We have 7 (5 at home) children and have always gotten a big return, but I am nervous about not having taxes taken out. Can anyone give advice?

Answer 1

Estimate your taxes for the year by estimating your total income for the year, and calculating your taxes using the 2006 brackets as a guide. That should give you a good idea of how much you will owe for the year.

It looks like neither you nor your husband had any withholding this year, if so, it is likely that you will have some penalties for not making quarterly estimated tax payments. The best thing you can do is to start dealing with this right now. If you know that you will make more this year than last year, then you might consider sending in a check for 3/4 of that amount very soon to account for the first 3 quarters of 2007. Then you can send in a 1/4 check when 4th quarter payments are due. There is a safe harbor for underwithholding based on sending in at least what was owed in the previous year. The specific amount of the safe harbor depends on the total income, so you will need to consult Publication 17.

The 5 children should reduce the total amount of taxes that you will owe, but the exact effect will depend on your specific tax situation. If you generally do your own taxes, then I would just calculate your taxes based on your estimate for the year.. Otherwise, I believe you should talk to an accountant.

Answer 2

It is difficult to be very exact with the information that you have provided. The first question would concern what other income you may have had andd and withholding that may have come frome that? For the sake of discussion I will assume that you have not had any other income or that your withholding will take care of it. With standard deduction and 5 exemptions the first $34,500 would be free of income tax in asny case. Now for the money that each of you will earn on a 1099 MISC. You will be able to reduce that amount by any authorized expenses that you would have had in earning that income. A start up Avon representative never makes any profit in the first year, so we will assume that you will zero out on that account. So take your husbands net income (gross income minus the expected expenses) multiply that by 92.35% than multiply the answer by 15.3%. The answer is your Self Employement Tax (SE Tax). Now take your husbands Net Income and add any other income you may have had. Subtract half of the SE Tax amount and you have your AGI unless you have some other factor that I don't know about. From the AGI subtract the $34,500 I mentioned earlier. What you have left is your taxable income. Find a tax chart at IRS.gov and locate your tax with a MFJ filing status. You now have your Tax before credits. If the children are under 17 years old on 12-31-2007you can subtract $5,000 for Child Tax Credit ($1,000 for each kid under 17) from the Tax. Now add back the SE Tax amount you calculated before. Subtract any withholding you may have had from prior jobs and you have the Tax that will be due and the amount that you should put away. In the coming years you will need to make estimated tax payments. That is another calulation altogether.

Answer 3

First one of these for the day.

I have canned explanation to apparently clueless independent contractors:

Some employers try to get around paying employment taxes (social security and unemployment) and other employee benefits like workers compensation insurance by improperly classifying employees as independent contractors. If you are required to show up for work--personally--at a particular time, punch the clock, use the employers equipment (other than hand tools construction workers ordinarily provide for themselves) and are paid an hourly rate, you are an employee. If you didn't understand the difference when you posed your question, I would be even more convinced that you are an employee. What is your preference, Slotted or Phillips? Complete an IRS Form SS-8 to get an official ruling on your status. This will help you get unemployment if you get fired or workers comp if you get hurt. When you file your income tax return, you can attach Form 8919 Uncollected Social Security and Medicare Tax on Wages and only pay the employer's half of social security. You will still have to cough up all the income tax.

AND ANOTHER WARNING: In my state, California, if you don't have a contractor's license you can not do construction work as a self-employed person beyond handyman type jobs. If this kind of law is in effect where you are, your husband will not only be screwed over by his employer, he will be a criminal.

For Avon sales, there no question--you are an independent contractor, just don't plan on making a whole lot of money. Flipping burgers for minimum wage will probably be more lucrative.

Answer 4

How did you do your tax return in 2006? If you used software, try doing a dummy return with the income you expect to have. (Alternately, do this with last year's forms.)

For many self-employed individuals, the real shock is the 15.3% Self-employment tax on net earnings. (On the W-2, you paid in 7.65% and your employer paid the other half so it didn't seem so bad and it was already paid before you ever got your paycheck.)

Money from the additional child tax credit and EIC can be used to pay the SE tax, but you may or may not have those.

If you truly don't have time to look at a tax return, consider putting 15-25% aside for federal taxes. If you put too much money aside, you'll be fine; put too little aside and you will be on a permanent payment plan with the IRS. (If 20% is your target and you put aside nothing, you'd end up trying to put aside twice that much the second year since you'll be trying to pay off the first year PLUS penalties and interest as well as trying to not owe the second year.)

Answer 5

You'll be in pretty good shape for income tax assuming you don't make a huge amount. If all 5 or most of them are under 17 so you get the child tax credit for them, you aren't likely to have any income tax liability,but what will get you is the self-employment tax for social security and medicare - figure 15% of your net self-employment income for that - his 1099 work, and your Avon.

Did your husband have another job, with taxes taken out, for the year up to now?

Answer 6

If your husband just now started his new job, and you normally get a refund, do nothing this year. However, have your income situation analyzed carefully when you get your taxes done for 2007. If you will have a balance due, you can send in estimated taxes for 2008. You generally are required to send in estiated taxes if your balance due is going to be $1,000 or more.

Since you are self-employed, you have to pay not only income taxes but Social Security and Medicare taxes. Although you may not owe income taxes, you will have to pay about 15% of your net income for SS and Medicare.

Examples (assuming all children are under 17 and no other credits or deductions). Based on the 2006 tax tables.

Net income: $75,000
Taxes owed: $10,778

Net income: $50,000
Taxes owed: $3,533

Net income: $40,000
Taxes owed: $1,596

Net income: $30,000
Refund: $454

Net income: $20,000
Refund: $2,431

Answer 7

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