.....
Printable View
.....
I don't believe there's a limit to how many itemized deductions you can have--of course, they shouldn't exceed your gross income!
If you have an exorbitant amount of deductions then you could be flagged for an audit. So, it's best to have clear records (receipts, credit card purchases) to back up all of your deductions.
Remember, dancer expenses are subject to the "housewife test". This means that Covergirl make up is not a valid deduction because it is something that "housewives" use--as in you don't need to be a dancer to use it so it is not a valid business deduction. Professional hair treatments/cuts, STAGE make up (i.e. MAC make up), costumes for work, COSTUME jewelry, gas to and from work, plane tickets for business trips, hotel accommodations for business trips -- those are legitimate. Cosmetic surgery is not, with the exception of 1001 CC+ breast implants (Busty Love took her case to the Supreme Court stating that breast implants larger than 1001+ CCs were not for personal use--and could only be used for business purposes). She won the case.
A standard deduction is an amount that non-itemizers can deduct from their income based upon their filing status.
An itemized deduction is an eligible expense that individual taxpayers in the United States can report on their federal income tax returns in order to decrease their taxable income.
Most taxpayers are allowed a choice between the itemized deductions and the standard deduction. After computing their adjusted gross income (AGI), taxpayers can itemize their deductions (from a list of allowable items) and subtract those itemized deductions (and any applicable personal exemption deductions) from their AGI amount to arrive at their taxable income amount. Alternatively, they can elect to subtract the standard deduction for their filing status (and any applicable personal exemption deduction) to arrive at their taxable income. In other words, the taxpayer may generally deduct the total itemized deduction amount, or the standard deduction amount, whichever is greater.
^^^ all good advice, with the exception that gas and other auto expenses racked up driving to and from home to a 'primary place of business' are NOT legitimate tax deductions. Only gas and other auto expenses racked up driving BETWEEN multiple business locations is tax deductible ( with classic dancer example being the owner of your 'regular' corporate club location sending you to work at a different corporate club location for the night - making the drive between club locations deductible 'business travel' as opposed to the non-deductible commute between home and 'work').
If you didn't pay California state income taxes in 2010, if you don't own a home generating deductible home mortgage interest payments, if you didn't make major college tuition payments etc. the odds are that the standard deduction will result in a lower tax bill. The 'better' tax preparation programs like TurboTax for Home & Business will of course run both calculations and recommend which one to choose to minimize the taxes you owe.
As to estimated taxes, yes there is a first year exemption ... which is a concession to the fact that most 'mainstream' small businesses require several months to get a 'handle' on their expected level of quarterly earnings. Thus you are not required to file an IRS form 1040-ES or a Califorrnia form 540-ES during 2011. However, not making estimated tax payments throughout 2011 doesn't actually save you any money ( well yeah technically it saves you the 1% interest earnings if that money is allowed to sit in a bank account versus used to make 2011 estimated tax payments). However, if you choose NOT to make estimated 2011 tax payments, be prepared to write a shockingly large check in April of 2012 to both the IRS and the California FTB. And obviously once 2012 arrives you WILL be required to make estimated tax payments ... with an April 15th 2012 payment being due on January through March 2012 earnings on top of the full year 2011 tax payments that will also be due at the same time if you choose not to make any 'first year' estimated tax payments in 2011.
The IRS 'housewife test' is counterbalanced against different IRS tax code that allows for 'ordinary and necessary' business expenses to be deducted. Unfortunately, this can result in conflicting interpretations from auditor to auditor, or even between the IRS and your state income tax auditors, where things like gym memberships, tanning sessions, hair and nail salons etc. are concerned. To be 100% 'safe' none of these sort of expenses can be deducted. To 'play the odds', perhaps 50% of these costs can be deducted as a business expense ( with the other 50% not being deducted i.e. being of 'personal' benefit ) - which would also increase the probability of an audit. To 'roll the dice' you can always try to deduct the entire amount as a business expense, knowing that you're significantly increasing the probability of being audited by doing so. While the IRS never publishes the 'algorithms' thier computers are using, it's generally accepted that both the number of itemized deductions, but more importantly the total dollar magnitude of itemized deductions compared to the total gross income level, contribute to IRS computers flagging tax returns for audit.
In regard to your comment about 'waiting until January' ... be aware that clubs aren't legally required to send out 1099-Misc forms until the end of February thus they may not actually show up in your mailbox until mid-March. As such, be careful about filing your 2011 annual tax return in January ( or even February ) on the assumption that you won't be receiving any 1099-Misc forms. If you have already filed, and a 1099-Misc form shows up after the fact which wasn't listed in the supporting detail of your electronically filed tax return ( or was not attached to your snail-mailed tax return ), the IRS and/or Cal FTB may make the assumption that the 1099-misc income reported directly to them by a club was not included in the gross income amount you listed i.e. greatly increasing the probability of an audit.
~
Sounds like you're a year behind. ;) You need to be paying your quarterlies throughout 2011, so that when you file your return in 2012, you won't have to come up with a shit load of money all at once. I think the form that you were looking at was for the 2011 return, which would be for taxes paid in 2010. The form you want should look like a worksheet with a little payment coupon on the bottom. Once you figure out your ES, you just need to mail in the coupon with a check. Don't worry about being exact on the quarterlies, that's why they're called "estimated." When you file a return in 2012 for this year, that's when you need to make every penny count.
^^^ no, actually, the IRS does allow a first year exemption from penalties for 'failure' to file and pay estimated taxes during the first year's operation of any new business.
(snip)"The IRS will not impose an estimated tax penalty if an individual,
a) incurred no tax liability during the previous taxable year, and
b) they were a citizen or resident of the United States throughout the preceding year, and
c) the preceding tax year was a 12 month period.
Determining the Required Annual Payment
Taxpayers must pay the lesser of 90% of the tax shown on the current years return or the specified percentage of the taxpayer’s preceding years return. If the taxpayer earned income in the preceding tax year of $150,000 or less then the taxpayer’s specified percentage is 100%. If in the preceding tax year the taxpayer earned more than $150,000, then the taxpayer is required to pay 110%.
Special Rules for Small Business Owners
Starting in 2009, an owner of a small business whose adjusted gross income is less than $500,000 and half of which is from business, is only required to pay 90% of the previous year’s tax liability in estimated tax payments."(snip)
from
Thus the 'legal basis' of the first year exemption on current year estimated tax payments ( tax year 2011 ... due in April, June and September of 2011 plus January of 2012 ) really stems from the last item listed on the attorney's analysis ... that 90% of the previous years' ( tax year 2010 ... filed by April of 2011 ) tax liability is ZERO since there wasn't any previous years' income to generate the tax liability.
However, as you correctly point out, even though no additional penalties will be imposed if she chooses not to make estimated tax payments during 2011, the full tax liability will still exist come April of 2012. Given a guaranteed 15.3% social security / medicare tax rate, plus a probable 18% federal income tax rate, plus another probable 7% California state tax rate, for a typical upscale dancer earning perhaps $1200 a week = $60,000 per year, order of magnitude of the April 2012 checks to the IRS and Cal FTB for taxes due on 2011 income could subtotal somewhere around $24,000. And don't forget that, over and above this amount, the first quarter 2012 estimated tax filing ( which will NOT fall under the first year exemption ) will require another $6,000 on top of the potential $24,000 in taxes due on 2011 income, bringing total checks due to the IRS and Cal FTB next April up to the $30,000 ballpark.
Indeed that magnitude of 'one shot' payments can be very hard to come up with without diligent money management throughout 2011. And if the $30,000 can't be produced by the April 15th deadline, IRS and Cal FTB late payment penalties and interest charges WILL be applied. Thus from a money management standpoint, I also recommend that dancers start making estimated tax payments as soon as they start earning the money. But the fact is that first year estimated tax payments are not legally required.
~
^^^ oh agreed. That would only have been true if you had started working on January 1st of 2011. Starting in July and working only six months in 2011 will put your annual income somewhere around $30,000 instead of $60,000. And while the 15.3% SSI tax will still apply ( = $4,600 ), progressive tax brackets will probably mean that your actual federal tax liability will be a couple of thousand dollars and your state tax liability will be a few hundred dollars. However, once January 1st 2012 arrives and your annual earnings are then on a $60,000 a year pace for the full year, you WILL owe around a $6,000 first quarter 2012 estimated tax payment that will be due at the same time as your ~$7,000 in 2011 tax return payments on April 15th.