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Accounting 101 question

nimrod

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Let's assume a self-employed individual earns 100k/year in gross income, while deductible expenses such as rent, supplies, etc. total 40k. To figure out one's taxable income due the IRS, is it as simple as deducting the expenses from the income (100-40 = 60k) and then multiplying the tax bracket % (such as 28%) by the net amount (60k)?
 

ronparise

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almost, you forgot your personal deductions...do you have no kid, or three kids or more, charitable giving, home interest, property tax on your home etc?.

Im assuming sole proprietor and not a partnership, corporation llc etc

The business income and expenses are entered on Schedule C the bottom line is entered onto form 1040. then the various personal deduction are taken

Now the end result is subject to the tax calculation

This an over simplification...your accountant can probably do a better job than me. The best advice I ever got was to visit an accountant with my business plan before I opened for business. He set up my books and from there my job was to just fill in the blanks
 
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mjm1

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Resorts Owned
Marriott: Resorts and Destination Club Points;
Westin Kierland Villas;
HGVC at Flamingo;
Hyatt Pinon Pointe
To qualify things, you should always consult a qualified certified public accountant (CPA) to get the most accurate answer to your tax questions. That said this may be more info than you really want. To say the least, our tax system is not a flat tax system, so it isn't that straight forward.

In general, you would do the following:

Business income
less: business expenses
----------------
Net self employment income (loss)
add: other income (interest, dividends, capital gains, etc)
less: above the line deductions (IRA contributions, 50% of self employment tax)
----------------
Adjusted gross income
less: larger of itemized deductions (mortgage interest, state, local and property taxes, charitable contributions, medical expenses in excess of the limit, and certain miscellaneous deductions), or the standard deduction for your filing status (single, married filing jointly, etc.)

less: Exemption for dependents
-----------------
Taxable income

Calculate your tax using graduated tax rates (of course you need to determine if you are subject to the Alternative Minimum Tax (AMT) and use the larger of the two amounts)
Add: self employment tax (approx. 15.3% of net self employment income)
----------------
Tax liability
less: payments/withholding already made
---------------
Tax due or refund

I apologize if this response is too confusing or not even allowed on TUG. I would recommend you hire a CPA to help you or buy a product like TurboTax, which will walk you through the process.

I hope this helps.
 

geekette

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+ 1 Turbo Tax. Long time user. Have always done my own taxes and went TT route long ago.

my ex had a self-employment business. previous response hits it but the nice thing about Turbo is that it keeps your info from last year and prompts you to check things you might not think of. Caused xdh to track things more carefully and added a few things to track.

Schedule C and whatever other forms just wrap right up into the household return. Easy! simple efiling. great explanations of tax rules.

Also, for deductibles, like donations of goods to charity, it is really helpful for putting a value to the items. What is the value of a twice-used George Foreman grill? let someone else figure it out.
 
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