This year when I did taxes I just used Turbo Tax and declared my income under self employment. I didn’t have to send money in because my husband and I filed jointly, but I expect that next year I’ll have to.
Next year, I’ll be filing as head of household, I believe…at the very least, I won’t be filing jointly with my husband, as I expect/hope to be divorced by then. I’m not entirely sure how much money to set aside for taxes between now and then, nor do I know what deductions, if any, I can itemize. The tax forms list all sorts of delivery persons, but not paper carriers specifically. So, if anyone in the know has any ideas, I’d certainly appreciate your input:
*How much money to set aside? I’ll make approximately $16,000 this year, possibly slightly more. I have 4 children, but only declare 3 of them as dependents.
*Can I deduct mileage or anything else? I also have to purchase supplies (bags, rubber bands, etc).
*Any other advice?
Thank you!
Best,
karol
Karol,
If you choose to itemize deductions, you can deduct any business expense for which you could have been reimbursed by your employer without such reimbursement being considered income. So, for example, if you have to purchase the rubber bands that you use to bind your papers they would likely be deductible. This is because you would not be considered to have additional income if your employer paid you back for the value of the rubber bands. The same is true for mileage and any other legitimate business expense you have.
Remember, that as a self-employed individual, you do not merely pay taxes on the amount you make, but there is also FICA (baiscally social security and medicare). These amounts are generally the first 15% of your income. On top of that are federal and state income taxes. To figue our how much you may owe in taxes, you can take a look at tax tables which are available in the instructions to the 1040.
The decision about whether to itemize deductions will depend on your situation. Even if you had no deduction, then IRS allows you deduct roughly $4700 (for single, head of household) automatically. If your itemized deductions are more than the standard deduction, then you should itemize to get the full tax benefit of the deduction.
Note, that deductions for children are not included in this $4700, those are taken seperately and generally allowed no matter what.
One thing you might want to look into is the earned income tax credit. Based on the basics you have told us about your situation, it is something you may be eligible for. To find out more info, you can go to the IRS web page and type in Earned Income Tax Credit.
As far was what to set aside, I wish I could help. I would guess that you will not owe much more than 15% of the amount you make to any taxing authority. The 15% should merely cover your FICA obligations. Even with those amounts, if you are eligible for the Earned Income Tax Credit, it is possile the you could still get a refund.
Note, I am unaware about the delivery people listed by the IRS. I am also unsure why they would ask you differentiate between what kind of delivery person you are…to the IRS, generally, income is income.
I hope this helps.
Please note, this is not binding tax advice. Merely a suggestion. For professional advice, you will want to contact a tax professional in your area.
If $16,000 will be your income, and you are claiming three dependents, and you will qualify for head of household status, your refund (the earned income credit mentioned by db4530) will most likely cover any taxes that you will owe. If you stroll in to or just call an H and R Block office on a slow day–like around now or during the summer–they would be happy, usually, to give you a ballpark estimate, free I am sure, as they have for me. That way, you can get a better idea of the numbers in your case.
Trust the tax experts on what you can claim, etc. – but if you’re like most carriers, you’re not an hourly or salaried employee of the Bloomington Daily Blab or whatever they call it, but an independent contractor – and I gathered when you said “self employment” you meant just that.
When I was moonlighting, the agreement between me and the man I was working for is that I would be an independent contractor, and I filed long form and used Schedule C – which made it very easy to deal with what I could deduct as expenses of running my own business, figuring self-employment tax on the net amount amount from there as it’s spelled out on the form.
You can deduct all your legitimate business expenses, pro-rating as appropriate (if you use your personal car to deliver, for example, the mileage of the route, including where you go to pick up the papers, is deductible, but your personal mileage is not – but you can figure the business mileage by working out the mileage once and then multiplying by the number of days you do the route – including collections if you have to do that separately.) Don’t forget to depreciate the car, too – a motor paper route wears it out much faster than private use! IRS usually doesn’t have a problem with reasonable round-figure estimates of incidental expenses (a receipt book, Xeroxing for flyers for your customers, etc.) if you don’t have precise numbers.
None of this means you can’t claim the standard deduction – that applies to personal deductions on your income – and your business expenses are legitimately removed from your net income from the paper-delivery business.
I don’t know if this is legally proper, but I never had a problem with simply filing between 1/1 and 4/15, without doing the quarterly self-employment tax prepayment, though you might want to do that simply as a form of self-withholding to keep from owing money at the end of the year. (I’m not advising you to break the law – let an expert say what’s proper there; the fact that most of my income came from regular employment and the self-employment was supplemental probably had a lot to do with my being able to do that.)
Thank you all for the input. This is very, very helpful.
It looks like I should be keeping better track of my expenses–bags alone cost about $30/month, and of course there’s mileage to consider.
I’ll have to itemize anyway because of the interest on the house payment, so doing this properly shouldn’t be a problem.
Now, I wish I’d figured all this out before I filed last, as I didn’t take any business expenses into account. Ah, well.
Thanks again, Dopers!
Gah! Don’t run away yet, I’ve gotta clean up a couple of messes.
First, someone above used $4700 as the number for your standard deduction (:wally :p), but for head of household in 2002 it’s actually $6900, and that may go up for tax year 2003.
Second, based on the facts you give it appears you will qualify to file as the head of household for at least tax year 2004. You may be able to file as head of household for this tax year as well. Go to http://www.irs.gov/pub/irs-pdf/p501.pdf for more information.
Third, based on the facts you give it appears you will qualify for the Earned Income Tax Credit. Go to http://www.irs.gov/pub/irs-pdf/p596.pdf for more information. This credit will probably knock out all of your tax liability, and its a “refundable credit,” meaning that you are probably going to get more on your refund than you paid in in the first place.
So, the bottom line is that you shouldn’t worry that much about keeping track of your expenses because there’s no way they are more than the standard deduction, and you probably won’t pay any tax anyway because of the EITC.
Feel free to drop me an email if you read the above and need more help.
Aaaah, I just knew there’d be a TaxGuy on the SD somewhere. 
Okay, I have no idea if any of this info will make any difference, but here goes:
This year, I filed jointly with my husband. I wasn’t sure if I could file as head of household as he moved out toward the end of 2002. At any rate, next time I’ll file head of household, which should be my best choice, correct?
And if the EITC will take care of most of my taxes on income, then all the better…I was trying to work out a budget to put aside a chunk of money for it, but frankly, 15% of $16000 is a LOT when you’re raising four kids.
Hmmm…maybe I’ll just email you, TaxGuy. Thanks so much.
Couple more points (I know I’m jumping in late here):
Poly is generally correct in that, as a self-employed Schedule C filer (which you most likely are) you can deduct all reasonable, legitimate business expenses, including mileage. However, you don’t get to deduct mileage AND depreciate your car. You either take a standard mileage deduction, OR keep track of all actual expenses in maintaining your car (including depreciation) and prorate the total of these. (It’s much, much easier record-keeping wise to take the standard mileage rate).
As to your filing status, generally you don’t have a choice. That is, there are very specific criteria for filing married vs. head of household, and typically you don’t get to choose which is better. (If you are married, however, you do have the choice whether to file married/jointly or married/separately)
TaxGuy is also generally right on. (And I’ll hope he will jump in and correct me if need be on any of this). But of course, consult your own Tax Guy for circumstances which apply to your specific situation.