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Thread: 1040-ES & other taxes (some questions)

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    Featured Member Laurisa's Avatar
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    Exclamation 1040-ES & other taxes (some questions)

    Hello everyone! I just want to start off by saying that you girls (and guys) have inspired me in so many ways. I cannot believe how many intelligent women there are working in the entertainment industry, it really warms my heart.

    Anyway, I'll admit I was a bit confused about paying taxes as an Independent Contractor because I've always filled out a W2 and been fine. I did some hunting and I found a great, informative article that was authored by an attorney concerning 1040-ES forms (estimated taxes). So for anyone else who is contemplating getting into the business, here's a great link that is very informative about estimated taxes:

    http://www.incorporatorpro.com/legal...cle-30084.html

    I also went on the IRS' official website (www.IRS.gov) and there were several helpful links about being self employed. The biggest complaint I had with their website is that it's written in legal mumbo-jumbo and because I haven't taken a lot of courses in economics, I don't understand it all. If you want to access information you know hasn't been misinterpreted, I'd think their website would be the place to go!

    Here are various questions I have, feel free to answer all or a few of them!:

    Now, correct me if I'm wrong, but the 1040-ES taxes cover income taxes (state and federal) and self-employment taxes (Social Security and medicare). Because of this you are not responsible for paying any other taxes at any point, correct?

    The most confusing part of all of this for me:
    When you are tracking business expenses (hair care products, make up, outfits, etc) you are supposed to make deductions quarterly? As in, for the first quarter (January 1 - March 31) if you had $1,256.75 in business expenses, you would deduct that from your April 15th payment, right? (Example: If you owed the IRS $4,647.23 for that quarter, you would subtract the $1,256.75 of business expenses and pay them $3390.48 for the quarter).

    When do you get your tax return? Since you're paying quarterly is it just a lump sum like everyone else's when the time comes? Or is there a different procedure?

    How/when do you claim other deductions with the 1040-ES forms? (Such as having a child).

    Non-tax related question:
    If you are self-employed and are considering applying for financing a vehicle or leasing an apartment, there are usually yearly income requirements. Do you have to wait an entire year for your tax return to prove your income? Or is there another way? (1040-ES forms)?

    Lastly, I live near Detroit, MI. I'm sure there are at least a few dancers on SW from around here. Has anyone hired a tax accountant from this area? What kind of cost are you looking at when hiring someone, and is it worth the trouble? (Input from other people in other areas of the U.S. would be helpful!)

    Thanks so much! I hope the top part of this post helped some other confused people, appreciate all of the help!

    -Laurisa

  2. #2
    Banned Melonie's Avatar
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    Default Re: 1040-ES & other taxes (some questions)

    Now, correct me if I'm wrong, but the 1040-ES taxes cover income taxes (state and federal) and self-employment taxes (Social Security and medicare).
    The federal 1040-ES covers federal income tax and self employment ( Social Security ) tax obligations. Every state that levees its own income tax will have an estimated tax form of its own. For the state of Michigan, the form is at Besides filing a quarterly 1040-ES and sending a check to the IRS, you also need to file a quarterly MI-1040ES and send a check to the State of Michigan.


    As in, for the first quarter (January 1 - March 31) if you had $1,256.75 in business expenses, you would deduct that from your April 15th payment, right? (Example: If you owed the IRS $4,647.23 for that quarter, you would subtract the $1,256.75 of business expenses and pay them $3390.48 for the quarter)
    Fundamental error ! Deductible business expenses get subtracted from your 'gross' receipts ( earnings ), resulting in a lesser amount of 'net' profit for your 'business'. Taxes are then calculated based on that 'net' profit. Reworking your example, if your 'gross' receipts for the quarter were $15,000 your calculated federal tax might be the $4,600 you mentioned. If you had $1250 in deductible business expenses, this would result in a 'net' profit of $15,000 - $1250 or $13,750. The calculated federal tax on the new net amount might go down from $4,600 to $4,200. Put another way, the 'value' of tax deductions is the same as your tax rate. If your federal tax rate is 30% and you have $1250 worth of deductions, the actual dollar savings is only 30% of $1250 or $400.


    When do you get your tax return? Since you're paying quarterly is it just a lump sum like everyone else's when the time comes? Or is there a different procedure?
    Functionally speaking, your annual tax return due on April 15th reconciles your actual tax liability versus four quarterly estimated tax payments you made yourself. This really isn't any different in principle from an 'employee', other than the fact that the employee reconciles their actual tax liability against 52 weekly estimated tax payments ( which were withheld from their paychecks and sent in to the IRS by their employer).


    How/when do you claim other deductions with the 1040-ES forms? (Such as having a child).
    You can 'bump' the percentage figures you are using to calculate quarterly estimated taxes at any time. Obviously if you give birth to a child, your income for that quarter is going to drop due to missed work, and your tax rate is going to drop to boot thanks to an extra tax deduction. Same sort of principle applies re selling profitable stock shares or taking a loss on the sale of stock shares, or anything else that results in increased income or deductible losses during a particular quarter.


    If you are self-employed and are considering applying for financing a vehicle or leasing an apartment, there are usually yearly income requirements. Do you have to wait an entire year for your tax return to prove your income? Or is there another way?
    These days, lenders typically want to see two years worth of 1040 tax returns. The estimated tax forms really don't have much credibility since you can basically enter any amount you want. Only the 1040 tax return will show actual official net income for the year.

    Some lenders are content with bank statements showing regular cash deposits as quasi-proof of income. However, this is not really 100% credible either since the actual source of the deposited money could potentially be something other than your own income (i.e. money from parents, money borrowed from an 'unofficial' source etc.). You can probably get approved for a loan on this basis, but the lender will wind up charging you a higher interest rate in exchange for the higher 'risk' of default that people who cannot show tax returns represent !

  3. #3
    Featured Member Laurisa's Avatar
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    Default Re: 1040-ES & other taxes (some questions)

    Thank you, you answered all of my questions!

    The only thing I still don't fully understand is how you make other deductions (like having a child). I know that having a child is supposed to give you a larger tax return, but I still don't quite understand how/if having a child helps me quarterly from year-to-year.

    -Laurisa
    If you are willing to do for one year what other's won't, you can spend a lifetime doing what other's cant.


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    God/dess Paris's Avatar
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    Default Re: 1040-ES & other taxes (some questions)

    Quote Originally Posted by Laurisa View Post
    Thank you, you answered all of my questions!

    The only thing I still don't fully understand is how you make other deductions (like having a child). I know that having a child is supposed to give you a larger tax return, but I still don't quite understand how/if having a child helps me quarterly from year-to-year.

    -Laurisa
    You may consider hiring a tax accountant. They are worth their weight in gold! Oh, and you can deduct any fees your account charges you as a business expense, so the end result is that you aren't actually paying anything extra out of pocket.


    Promote yourself and earn more money! This is a business that is owned by strippers for strippers. Let's make that money!


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    Banned Melonie's Avatar
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    Default Re: 1040-ES & other taxes (some questions)

    The only thing I still don't fully understand is how you make other deductions (like having a child). I know that having a child is supposed to give you a larger tax return, but I still don't quite understand how/if having a child helps me quarterly from year-to-year.
    Essentially, having a child lowers your effective tax rate ... both by adding a dependent exemption but more significantly by changing your 'filing status'. In other words, if the effective federal income tax rate on a 'single' dancer earning $60,000 per year calculates out to 30% = $18,000 using the tax table for 'single' filers, after having a child the effective federal income tax rate on the same $60,000 per year income might only be 25% or $15,000 because the dancer can now file as 'head of household' and can calculate tax liability from the tax table for 'head of household' filers ( where the tax percentages versus income level are lower ).

    However, if the dancer was married, the birth of a child will amount to a lower tax savings, since the same 'married' filing status and tax tables would apply before and after the child was born. But in every case the new dependent tax exemption for the baby will still result in some tax savings.

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    Featured Member Laurisa's Avatar
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    Default Re: 1040-ES & other taxes (some questions)

    Thanks Paris, I have considered hiring a tax accountant, but a part of me also is eager to learn more about economics and managing my finances effectively! I am unsure of which approach I will choose as of now.

    Melonie, I appreciate the clarification. I admire your intelligence and willingness to help others. If I met with a tax accountant and requested that they help me understand filing my 1040-ES and MI-1040ES on my own, do you think they would help me for a fee? Or is that not something that is probable?

    -Laurisa
    If you are willing to do for one year what other's won't, you can spend a lifetime doing what other's cant.


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    God/dess Zofia's Avatar
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    Default Re: 1040-ES & other taxes (some questions)

    Quote Originally Posted by Laurisa View Post
    If I met with a tax accountant and requested that they help me understand filing my 1040-ES and MI-1040ES on my own, do you think they would help me for a fee? Or is that not something that is probable?

    -Laurisa
    For a fee, an accountant will do almost anything. LOL

    In all seriousness, a CPA will generally spend time helping her clients understand their taxes. You can also take classes at your local community college. Legal Aid societies often teach classes on how to prepare taxes and then use the graduates as volunteers in their free tax clinics. (Shameless plug, for Legal Aid, but I volunteer for them every spring.) You can take classes at most colleges and universities in economics, finance, accounting and taxation.


    HTH
    Z

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