chapter 7 bankruptcy for dummies

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Sometimes, another writer, as he was told that I am both a writer and tax consultant asked me about the best ways that minimize their taxes authors.

If I can, I will offer my way weasel out of the discussion until such basic tidbits as, try "Well, be sure the home office deduction Search. "And" this is a basic accounting program like Quicken or use Microsoft Money, so that all your business expenses cover letter. "

Normally, these simplistic answers work. It is the practice by Dolling such drivel, the guy moves away with a drink and appetizers to get more.

Every once in a while, although I met some writers who is really motivated to save on taxes. Usually someone now on the right money letter … If I not distract their questions in a different way, I tell them about the three best options, the authors have to save on taxes.

Technique # 1: Smooth Your income

Whatever you think of the U.S. Internal Revenue Code, you must know that it's pretty progressive. That is, the more progressive do you do to pay more. The progressive also means that if your income fluctuates, go to your taxes, even if the same money you earn on average than someone else makes their income constant.

To give you an example, assume that you compare two authors, John and Jane. If John makes a steady $ 60,000 per Year and a mortgage, a spouse and some kids, he would pay about $ 1000 over four years (after deduction of tax credits, such as for children.)

In comparison, assume that Jane average $ 60,000 per year, but sees its income vary from about $ 30,000 a year and $ 90,000 per year. She makes about 60,000 $ per year on average. But if a spouse, two children and a mortgage, they will probably pay $ 8,000 to $ 10,000 tax on the same four years.

Please note You know that over the same four years, then, the two authors to make the same amount of money: $ 240,000. But what they are paying taxes is radically different. Jane pays eight to ten times as much as John is worth it! Yikes!

What can Jane? Now, let us again the example of the writers work. Jane is rather easy to smooth their income. You can ensure that they do not stack two great progress in the same year. You can spread payments over two or more years. They can to cram even more try of their effort in the good years. In the good years, for example, can buy them new computers, take the graduate classes or complete their pension.

Technology No. 2: Setting up an LLC and elect S Corporation status

I have written and talked a lot about how S corporations to save taxpayer money and how the right Way to set up an S corporation is initially a limited liability company and then ask the IRS, the LLC as an S corporation to be treated for tax purposes.

Let me write here but the basics again. Suppose you make $ 90,000 a year as a writer or author. If you only treat your writing business as a sole proprietorship, You can pay $ 12,000 in income taxes on the $ 90,000 and then 15.3% self-tax, or roughly $ 13,500 on the $ 90,000.

If you are the establishment an LLC and the LLC treated as an entity S, you'll still pay the same $ 12,000 tax. But you will only pay 15.3% self-employment tax on that portion of the profit that you categorize as wages. If you, say, $ 30,000 of the profits categorized as salary, you will pay $ 4,500 in self-employment taxes. (The other $ 60,000 in the remaining profit, by the way, get paid as a dividend as "Distribution").

These figures example, then would You save more than $ 9,000 a year in employment taxes by using an S-Corporation.

Two quick points on S corporations: First, S requires Corporations, some additional tax and accounting, so you do not get to spend all your savings. Some of the savings go to the lawyer, the accountant and the Bank. Second, be sure to set your salary to a reasonable level.

Technique # 3: Make your residence

A final, simple planning gambit. Remember that states like Alaska, Florida, Nevada, Texas and Washington that do not charge state taxes residents. Accordingly, if you move to one of these states, you will automatically drop your overall tax bill because you do not have state taxes.

One of the advantages of writing is that you live for, wherever you want. Why not choose a place that does not have the control of your writing income?

But a warning: be careful that you are not from the other state taxes getting blindsided charges. For example, Washington state, where I am living costs of a four-thousandth of excise license revenue. This is much lower tax rate than high tax states like California and New York charge a writer. Which perhaps explains why during the technology boom the 1990s, many computer-high six-figure authors make low single-digit million range and moved to the income of the Seattle area.

Washington State LLC formation expert Stephen L. Nelson CPA has written more than 150 books. Formerly an adjunct tax professor at Golden Gate University, Nelson is also the author of Quicken for Dummies. Copyright 2006 by Stephen L. Nelson, CPA. He also edits the s corp web site.

Bankruptcy for Dummies – Part 2

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