Part time Camming what is my tax responsibility?
Hi all,
I am looking to embark into the camming world as a 2nd job for myself in this very rough economy.
I have a regular "vanilla" job working the traditional 40 hr work week,
where my income tax /medicare, etc is withheld on my paychecks as per the law.
My question is....if I'm camming say 20-25 hrs a week what would be a fair percentage that I should be holding aside for myself to be ready to pay up at tax time?
I've heard 30% seems to be the usual amount for most self employed in this biz.
But is that 30% assuming one is a FULL TIME worker at camming?
what about us part-timers?
could I save at say 15% and be ok? Or does it not matter the amount of hours worked?
I'm a real noob here, so forgive my ignorance.
I do plan on seeing a tax advisor when tax time rolls around anyway,
but I'd like to be well prepared for my responsibilities going into this, and start setting aside a little money each month just so I don't get any rude surprises at tax time.
Thank you!
Re: Part time Camming what is my tax responsibility?
^^^ assuming that you will be working as an 'independent contractor' camgirl ... and obviously assumes you are a US citizen ...
15.3% of every dollar you earn camming is going to go towards Social Security - medicare tax a.k.a. the 'self-employment' tax. On top of that, a sliding scale percentage federal income tax is going to be collected. However, with camming as a 'second' income, any camming earnings are going to be taxed at a higher percentage than your 'primary' income.
For example, let's assume that your 'primary' income adds up to $10 / hour * 40 * 52 = $ 21,000 per year. Let's also assume that you are single with no children or other dependents, that you don't own a home etc. In that case, the $21,001'st dollar you earn from camming will be subject to a 15% federal income tax. And once you earn a total of $34,900 - $21,000 = $ 13,900 from camming, every additional dollar earned will be subject to a 25% federal tax rate. Since you don't get any additional personal deductions or exclusions for camming income beyond those you get for your 'straight job' income, the combined 'effective' tax rate on your camming income will be at least 30% gradually increasing toward 40% as your camming earnings increase above $13,900 per year. Obviously the 'break point' where your income tax rate begins rising is affected by how much 'straight job' income you actually earn i.e. every dollar earned over a combined total income of $34,900 will be subject to a 25% federal income tax rate.
Also certain states impose their own income tax, which could add another 2-3-5% in tax liability.
There is some current talk in Washington of extending a temporary reduction in the Social Security tax, which would drop that tax rate by 2% if re-approved. There is also a situation in Washington where failure to pass an extension of the GWB income tax 'cut' rates currently in effect could increase the federal income tax rate by 3% or so.
Either way, with 'straight job' income to consider, your 15% figure is way off ... minimum would be in the 30% ballpark for a 'combined' total income of less than perhaps $ 35,000, not counting any applicable state income taxes. If that 'combined' income level approaches $50,000, the effective tax rate will rise to the 33% ballpark, again not counting any applicable state income taxes. And if that 'combined' income level approaches $100,000 the effective tax rate will continue rising to the 36% ballpark, yet again not counting state income taxes.
I would also point out that, because your 'primary' job employer is not going to be aware of your webcam earnings, the amount of employee estimated income taxes being withheld from your weekly paychecks by your employer may be less than the amount of income taxes you will actually owe on that paycheck income unless you take deliberate action to increase your withholding ( i.e. filing a new w4 ). This is because there are various 'refundable tax credits' available to persons with a $21,000 income that may be reduced at a $35,000 'combined' income level and may disappear altogether at a $50,000 'combined' income level. Thus you may find that you will need to self-withhold an even higher percentage of your webcam income to make up for the additional taxes due on your straight job income.
I would also add that the next estimated tax payment on dancing income earned from September through December of 2011 is due on January 17th 2012. If you have earned webcam income in 2011, you almost certainly won't have either the W2 from your straight job or the 1099 from your webcam hosts available by that date to allow you to file your 2011 full year tax return ( which isn't due until April 16th ), so you'll need to file a separate 4th quarter 2011 estimated tax voucher and send a separate check to the IRS. You can find the 1099 form online at . Also if you live in a state that levees its own income tax, you'll also need to file a separate 4th quarter 2011 estimated state tax voucher and send a separate check to your state tax dep't. by the same January 17th deadline. Obviously if you haven't yet started camming and don't have 2011 camming income to report, you won't need to do this until the first quarter of 2012 ... which applies to income earned from January through March of 2012 ... and shares the same April 16th filing deadline as annual tax returns.
From your original comments, I see that you are unaware of the quarterly nature of estimated tax filings for 'independent contractor' sole proprietor businesses like dancers and camgirls. No you don't get to wait an entire year before making tax payments on your webcam income ( well, if you want to avoid underwithholding penalties and potential IRS interest charges you don't ). That means setting aside 30% ( or whatever ) of every webcam check you receive from January through the end of March into a dedicated account ( i.e. a separate bank account at best, or an envelope in your bedroom drawer at worst ), then on April 13th or whenever you have ALL of that 30% money drawn in the form of a check or money order that gets put in an envelope and sent to the IRS along with the 1st quarter 1040ES voucher per above. If your state levees an income tax, you'll need to do the same except the percentage amount will be the 2-3-5% or whatever that applies in your individual case. Then you repeat the process for income earned in April & May ( due June 15th ), for income earned in June through August ( due Sept 15th ) and income earned in September through December ( due January 15th of the new year ). This is essentially the same estimated tax mechanism that your straight job employer does for you every week via the employer's payroll system. As an 'independent contractor' sole proprietor business you have to do this withholding and IRS estimated tax filing / payments yourself ... but fortunately you only have to do it 4 times a year as opposed to every single week the way your straight job employer does !!!
I'm very encouraged to see that you are asking these questions 'up front'. This is a major departure from the 'typical' camgirl who simply starts camming, who is oblivious to the requirement for quarterly estimated tax payments, and who may then face a very 'rude awakening' when a 1099 from webcam hosts shows up the following February ... which in turn forces a complicated income tax return filing PLUS an IRS payment equal to 30+% of her previous year's webcam earnings being due by the following April 15th ... which in turn may result in the payment of even MORE money to the IRS in the form of interest payments, penalties etc.
I would also add that, on the topic of tax planning, if you don't yet have any 2011 camming income, with only four weeks left in the 2011 tax year, you may want to consider simply 'sitting out' the start of camming activities until the first week of January. My reason for saying this is that since you do have a significant amount of straight job income for 2011, your next tax return can remain very simple as long as there isn't any 1099 income from a webcam host in 2011 that must also be accounted for. Having 1099 income from a webcam host in 2011 will force you to file a 1040 long form along with a Schedule C 'profit or loss from a business' instead of filing a 1040EZ ... which if you're not prepared to do this yourself is likely to add a couple of hundred dollars in accountant / tax preparation fees. The addition of 2011 camming income may also result in the reduction of 2011 'refundable tax credits' you might have otherwise received based on your 2011 straight job income level alone. Thus for every 1099 webcam income dollar you might earn in the remainder of December, you may also wind up 'losing' 50 cents or more !!!
~
Re: Part time Camming what is my tax responsibility?
Hi Melonie,
Well I was hoping you'd be the one to answer this question for me - I've seen your posts around SW and you're obviously a very smart and saavy lady when it comes to $$ (as well as computers and tech stuff too!).
Yes...I had read about the quarterly payment requirements, that's why I was hoping to get a little more info on the specifics of it.
Thank you so much for sending the IRS link on the 1040es worksheet.
I tend to be a big dummy when it comes to math and calculatiions of this sort, so it all seems a bit overwhelming right now.
I feel like I should be sitting down with a CPA or
something before I start my camming! But I don't have money for that either.
Here's my situation:
I am single, no dependents
I made $27,000 (net) last year from my straight job
I'm looking to start camming with Streamates (which to my knowledge does not send out a 1099 because they're located outside the U.S) Thus I will need to keep very close records on all checks going into my bank from them. I also plan to buy Quicken software to help me track all this.
But 2 questions for you,
First....when sending in my quarterly payments - they ask for my "estimated income" right?
Is that an estimate for the whole YEAR they're looking for....or just quarterly?
Second...When I file my "main" income taxes (for my regular "vanilla" job) at the start of each year, well....do I need to include my camming income on that as well?
I'm confused about that....
Can't I keep my camming income OFF the 1040EZ ?
and Just fill out and send in another 1040ES as that would be the final 4th quarter payment (due around Jan 17th) usually, right?
If I include my camming income on my 1040EZ then I'm going to be subjected to a full year's taxes on my camming income - which hardly seems right,.....when I've already been making my quarterly payments all along.
Am I correct about that?
and yes I do live in a state where we have State Income taxes due, so I'll have to look into the forum for that as well.
geesh...lucky us,
Instead of paying taxes ONCE a year we get to pay it 4 times!
Re: Part time Camming what is my tax responsibility?
Quote:
First....when sending in my quarterly payments - they ask for my "estimated income" right?
Is that an estimate for the whole YEAR they're looking for....or just quarterly?
It's actually the taxes due on your estimated income for the entire year, proportioned by the number of weeks in the particular quarter. In other words, if you anticipate earning $27k from your straight job plus another $26k ( = $500 a week ) from camming in 2012, the taxes due on $53k of combined income would probably be in the 33% range ( for the $26k of camming income alone, which are the estimated taxes you will be filing yourself ). So your first quarter estimated tax payment for camming would be $500 * 13 weeks * 33% = $ 2,145 . Obviously the $500 in my example gets replaced with the sum total of camming checks you actually receive between January 1st and March 31st.
The only 'curve ball' that may arise is the fact that you are also sending in some amount of estimated tax payments withheld with every straight job paycheck, the amount of which may not be adequate to cover the actual income taxes due on that straight job paycheck income when it's combined with additional camming income. This can be 'fixed' by either filing a new W4 with your straight job employer to have the estimated taxes withheld from your paychecks increased to the proper amount, or by sending in a greater percentage of your camming income as estimated tax payments to make up for the 'under-withholding' your straight job employer will be doing if you don't file a new W4 and your straight job paycheck withholding remains unchanged.
Quote:
Can't I keep my camming income OFF the 1040EZ ?
No ... short of forming a C corporation, if you have both 'employee' income plus 'business' income you must use a form 1040 tax return with the addition of Schedule C ( profit or loss from a business ) to report the combination of both income sources on a single tax return. After all, the taxes due on $53k of combined income for a single person aren't the same as the taxes due on only $27k of employee income for one person plus the taxes due on only $25k of camming income for a second person. This is also the basis for the 'curve ball' situation described above in regard to straight job employer estimated tax withholding levels from employee paychecks.
This isn't as complicated as it sounds ... and can actually be handled very well via any type of tax prep software that can do the Schedule C. I have personally been using TurboTax for Home & Business for many years, which by coincidence is 100% compatible with QuickBooks.
Quote:
Instead of paying taxes ONCE a year we get to pay it 4 times!
Actually this is a bit of a misunderstanding. As an employee you make estimated tax payments 12 or 26 or 52 times per year, depending on how often you receive a paycheck. With every paycheck, money is withheld for payment of estimated taxes, and is sent to the IRS along with an estimated tax voucher. The difference of course is that your employer is handling the withholding, the making of payments to the IRS, and the filing of vouchers with the IRS, on behalf of its employees, but the employees are still paying towards these estimated tax payments. When April 15th rolls around, filing an annual tax return reconciles the amount of actual taxes owed against the amount of estimated taxes withheld from all of the employee paychecks and previously sent in to the IRS.
Essentially the process isn't any different for a 'small business' withholding X percentage from every incoming business income check, making quarterly payments and sending in quarterly vouchers to the IRS. ... other than the fact that the 'small business' owner must take on the duties of estimated tax filings in a similar manner to the 'corporate business' withholding and making IRS payments on behalf of its employees. And the April 15th filing of an annual tax return also reconciles the amount of actual taxes owed against the amount of estimated taxes withheld and previously sent in to the IRS via the four quarterly payments.
Quote:
I will need to keep very close records on all checks going into my bank from them
Allow me to make a suggestion that you open a separate account for your webcam activities ... that you only deposit checks from your webcam host(s) into that separate account ... that you 'pay yourself' by transferring out 67% or whatever of the amount of the webcam host(s) checks into your personal account ... and that you have cashier's checks drawn against this separate account on a quarterly basis to make your estimated tax payments to the IRS and to your state tax dep't. You can also use this separate account for the purchase of a new computer, new camera, or anything else that is a legitimate business expense item for your camming business. Another example would be paying your high bandwidth ISP monthly service bill, paying the monthly bill on a dedicated business phone, paying for costumes / toys that you will only use on camera etc.
The 'problem' with business income received that is not backed up by 1099's is that, while the IRS can't directly prove that you earned X amount of business income, you are also unable to directly prove that you ONLY received X amount of business income. Having a dedicated business account where every webcam host check shows as a line item deposit can go a long way towards making your claimed business income 'credible' to the IRS and/or your state income tax dep't if and when you are audited ... giving the impression that your webcam business is being operated and accounted for in a 'professional' manner.
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Re: Part time Camming what is my tax responsibility?
wow...ok, I think I understand.
Well I'm downloading the Schedule C info along with the 1040 long form to study from the IRS.gov website, lol.
I usually do my taxes very quickly with Turbo Tax since I've always just had my one job to account for.
If I get confused again I may end up PM'ing you if it's ok?
I should make you my tax advisor Melonie!
Thanks again & a big hug to you :)
~Amy