What sort of advice would you give someone who just doubled their gross annual income and will probably owe at the end of the year?
Increase your withholdings, or contribute to a tax deferred account such as a 401k or traditional ira.
yeah I just started a 401K.
Could you give me a tldr on with-holdings (idk what those are)?
So on your pay stub you’ll see a number of things for which money is taken out.
Things like social security, medicare, 401k, probably some state stuff, but the one we’re looking for is labeled something like “federal income tax” and also state if you live in one that has income tax.
That is money taken out of your paycheck in order to pay your annual tax liability, and generally is the main source of one’s refund.
1 Like
I thought the form (W2?) was for calculating your withholdings based on income, deductions and exemptions.
But I suppose the form doesn’t take into consideration increases in salary, huh…
It’s a form w4. And it does account for some increase in salary, but they’ve changed it for 2020. And since they’ve changed it so drastically I need to relearn how it works, but I can’t do that until the IRS releases and updated pub 505. So right now they’re making everyone use a form that nobody knows how it works.
2 Likes
Nice!
Always mix those up. 
UPDATE #2
The IRS has once again, flip-flopped on those who don’t have to file and receive social security bit.
Straight from the IRS website, hidden in a tangentially related release warning people about scams, It now says that no action on the social security recipient’s part is needed in order to receive the payment.
See:
Also, to avoid scams one think to keep in mind is the official term of these checks is “Economic impact payment”. It is not “stimulus check/payment” as I may have said previously. Additionally, the irs never calls and will not be sending emails about the economic impact payment so those are obviously phishing efforts. You don’t need to update your banking info so if you receive anything like that also disregard it. Basic stuff that most of us should know, but if you know someone who is more vulnerable do pass the information on to them so they can protect themselves.
1 Like
Thanks Boots
I have always filed my taxes myself using the EZ form because I’m poor.
This year I “started a business” with zero income, bought some stocks and opened a ROTH IRA (for the 1st time), and received unemployment for most of the year.
Would an accountant be required or not until I actually make money?
Sorry if I do not know the correct questions to be asking.
Thanks Level1tech fam
So this is the main concern. Do you have a DBA or other official registration thing or is it just you getting all the stuff in place yourself? This can help determine when the business actually began. This will be important for purposes of deducting start up costs which generally must be depreciated over a period of years rather than taken all at once. If you’re just starting it up as an unofficial home business or whatever then it’s pretty safe to assume business begins when you start actual operations. If you do have one of those registrations then you should probably assume business start on the date they were filed.
Business taxes are fairly complex so having an accountant or tax preparer here would probably be a good idea, but it’s never required. Do keep good records though… I’ve had so many clients just waltz in with receipts, or one guy who brings in 2-3 boxes to sort through. Get it in order beforehand. Especially if you do end up using an accountant/tax preparer. Don’t be afraid to call ahead of time in the off season to sit down and have a meeting about how to set everything up if you’re unsure.
No big deal. Doesn’t affect your taxes until you take money out. When you do take money out then it’s assumed the money taken out is first your contributions, then interest generated. If you do take out interest before both 5 years after opening the account and age 59.5 (known as an unqualified distribution), then that money is subject to your regular income tax rate as well as an additional 10% tax.
Not a big deal unless you didn’t have taxes withheld from it in which case your refund will be smaller than normal or you may owe. It’s subject to normal income tax rates, just goes on a different line than your wages (goes on schedule 1 under unemployment compensation and the total from part 1 goes on line 8 on the 1040).
2 Likes
I started an LLC before covid…was going to do custom embroidery, but now I’m leaning more towards digitizing (converting a picture into an embroidery design on the computer) because its hard to source fabric items etc virtually.
So you did start a business for irs purposes even if you had no income. Anything you paid for that would be considered start-up costs (market analysis, products, labor supply, transportation facilities, advertisements for opening the business, training, travel and other necessary costs for securing distributors/suppliers/customers/et.al., consultant fees, similar professional services (lawyers, accountants, et. al.) etc.) will be added to the depreciation schedule and help determine your basis in the business.
You should also check with your state in order to determine if you need to file sales tax and thus need to catch up in the event you haven’t done so already.
Furthermore, for income tax purposes you should look into whether you need to file estimated tax based on size of the business, since as a self employed individual nobody is going to withhold income tax, social security, or medicare. For federal purposes you need to make estimated tax payments if you expect to owe $1,000 or more when you file. In the first year or so of filing you shouldn’t have to worry too much about it, but going forward it’s something to think about.
2 Likes
@ThatBootsGuy should I expect anything weird about taxes this year as a result of the stimulus’s?
1 Like
Nope, I already went over that in this post:
1 Like
I’m curious about something.
I believe I received 2 stimulus payments in 2020, and I don’t know what to put on my tax forms for “did you receive a stimulus payment in 2020?”. Wasn’t there two? For some reason I remember the $1,200 one and a smaller one later in the summer.
No, there was the $1,200 one and this latest $600 one.
1 Like
So are they asking to make sure I got it, because if I didn’t they would still owe it to me, or am I getting less back if I claimed I got it?
Obviously I’m not going to claim I didn’t get it when I did, because that would just not go well.
I hate the government, but I’m not about to fuck with the IRS.
1 Like
So the stimulus checks were an advance payment of a tax credit.
What that means is they gave you a certain amount, then when you file your taxes they make sure the amount was actually correct. For most people it won’t affect anything. If you had/lost a kid then it will change things, as well as if you were/are in the phaseout. But other than those 2 situations, no it won’t do anything to your return/payment.
1 Like
I’m still trying to figure out how all this works.
The standard deduction went up $200 from 2019, I made about $4,000 over the year from overtime and not missing as much time as I did in 2019, but I’m getting less back, despite having paid more into the system than 2019.
As far as I can tell, taxes work by “because fuck you that’s why” logic.
net gain of 3,800 in taxable income, multiply that by your bracket percentage. For napkin math we’ll say 20% (there is no 20% bracket). That’s an increase in tax of $760. If your federal withholding went up by less than that then of course you’re getting less back.