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detz
Feb 16, 2009, 02:59 PM
Got back from the accountant, pretty much 45% of everything I make goes to the government. So sad, so very very sad.



Jeremy1026
Feb 16, 2009, 03:10 PM
Got back from the accountant, pretty much 45% of everything I make goes to the government. So sad, so very very sad.

Yuck! Thats why its important to put away a good chunk of each deposit. So when tax season rolls around you'll be able to pay good ole' uncle Sam.

johnnybluejeans
Feb 16, 2009, 03:10 PM
Well.. the good news is, if you are paying out 45% to the government you must be making good money. :D

Aea
Feb 16, 2009, 04:15 PM
Well.. the good news is, if you are paying out 45% to the government you must be making good money. :D

:) :p

It's a good problem to have.

MooneyFlyer
Feb 16, 2009, 04:22 PM
Well.. the good news is, if you are paying out 45% to the government you must be making good money. :D

I'm not at 45% but it was a serious chunk and I'm definitely not consoled by the above comment. Yes, taxes are a good problem to have but when you get into serious AMT it really starts to get irritating and unfair.

dukebound85
Feb 16, 2009, 04:25 PM
they take just over 30% for me....not the biggest fan lol

firewood
Feb 16, 2009, 04:47 PM
Thats why its important to put away a good chunk of each deposit. So when tax season rolls around you'll be able to pay good ole' uncle Sam.

If you make enough from the App store in the U.S., you may have to pay, not just at tax season, but quarterly; and with enough to cover the additional self-employment tax.

If you don't know what you're doing and don't consult a tax accountant, you could well end up paying an additional penalty.

but ianal nor aa.

detz
Feb 16, 2009, 04:52 PM
they take just over 30% for me....not the biggest fan lol

That might just be federal. My breakdown is 25% for federal, 5% for state and 15% personal income tax. If you're working in the US then you probably at least have to pay 40% unless you make over $102,000/year then the 15% goes down to around 2%.

dukebound85
Feb 16, 2009, 04:56 PM
looking at pay stub

federal (withholding, med/ee and oasdi/ee): 24.8%
state (withholding and oasdi/ee): 5.3%

thats all that was taken out of mine per pay period

detz
Feb 16, 2009, 04:58 PM
looking at pay stub

federal: 24.8%
state: 5.3%

Pay stubs are difference because the company pays social security and medicare. If you make money on the side or through Apple they don't pay that so you have to pay that 15% so in you're case that's 44.1% tax on everything you make outside of work.

firewood
Feb 16, 2009, 07:22 PM
looking at pay stub
...
thats all that was taken out of mine per pay period

Pay stubs lie. Your employer actually has to pay additional amounts in taxes on top of your salary that you don't see on your pay stub. But someone has to pay it. If not your employer, than you get to pay 15.3%. Add that to your 30%. Add insurance(s), reserves for sickness/holidays/vacation, etc., and you probably need to make nearly double your hourly salary to just break even making money on your own.

In return, you usually get to deduct much of the costs of doing business (developers fees, business licenses, legal/accounting fees, web hosting fees, depreciation on equipment, rent, etc.). At least get a good (Nolo) book on the subject.

but ianal.

caveman_uk
Feb 17, 2009, 02:24 AM
If you're working in the US then you probably at least have to pay 40% unless you make over $102,000/year then the 15% goes down to around 2%.
A tax system where the richer you are the less you pay...interesting

Cromulent
Feb 17, 2009, 02:52 AM
A tax system where the richer you are the less you pay...interesting

Yeah, stupid isn't it?

In the UK if you want to avoid paying the top tax bracket (40% iirc) you setup a limited liability company and then you just have to pay 21% corporation tax and 10% dividend tax (rate goes up if you pay yourself more than 30k roughly).

I don't know if the same is true in the US.

caveman_uk
Feb 17, 2009, 03:19 AM
In the UK if you want to avoid paying the top tax bracket (40% iirc) you setup a limited liability company and then you just have to pay 21% corporation tax and 10% dividend tax (rate goes up if you pay yourself more than 30k roughly).

I was under the impression that HMRC had gradually made being a company less and less advantageous for those simply trying to avoid paying more income tax (as you note the dividend rate goes up at high amounts...just when the 40% tax band kicks in). At the lower end of the scale it's probably not worth the effort at least in financial terms. Obviously there are other legal advantages of being a company such as reduced personal liability but you could get indemnity insurance I guess.

Gottaa
Feb 17, 2009, 03:55 AM
It costs very little to setup a company in the UK, and the returns can be minor but it does all add up.

Back in 2000 when I used to run my own company it used to buy my gadgets, pay half my mortgage and bills (as my home address was my place of work) and paying myself a minimum wage I could live and occassionally take out dividends, I think now it's much less efficent as they tied up the loopholes but I imagine it would be worth it in the long run, especially if you are already close to or in the higher tax bracket

Cromulent
Feb 17, 2009, 04:58 AM
I was under the impression that HMRC had gradually made being a company less and less advantageous for those simply trying to avoid paying more income tax (as you note the dividend rate goes up at high amounts...just when the 40% tax band kicks in). At the lower end of the scale it's probably not worth the effort at least in financial terms. Obviously there are other legal advantages of being a company such as reduced personal liability but you could get indemnity insurance I guess.

Well as a sole trader you have to pay income tax on your total turnover which depending on your income could be 40%. As a limited company you only pay 21% on your total turnover regardless of earnings.

Dividends can only be paid out of profits so you only pay dividend tax a) if you choose to pay yourself a dividend and b) only at the amount you pay yourself in dividends (it is completely separate from your turnover).

Also if you pay yourself the maximum amount of tax free allowance (5,300 ish) a year salary then you do not need to pay national insurance or any other tax and I believe you can also claim tax credits. Then you just make up the rest of your salary with dividend payments assuming that the company is in profit.

Just beware that if you don't pay national insurance your state pension will be rubbish so make sure you keep paying into a private pension fund.

wizard
Feb 17, 2009, 05:59 AM
Got back from the accountant, pretty much 45% of everything I make goes to the government. So sad, so very very sad.

Yes very sad indeed. I took some business classes last year and the ball park figure they gave us was %50 percent for NY. There are variables but it was clear that you have to make a lot of money, as a small business person, if you expect to maintain a reasonable standard of living.

The bigger problem is that current mindset in government is to tax even more which is totally stupid. Unfortunately I've not seen a state nor federal government collectively say that things can not go on as they have in the past. Even with the next great depression looming the mentality is to remove more money from the pockets of the people that actively work to make America great.

It is sad enough to know that they are taking your money at such excessive rates. What is more upsetting is the scum bags that money supports. Be it the welfare mom or the various foreign states that turn around and use that money against us, it is all pretty disgusting. Unfortunately at the federal level we really screwed our selves in the last election. We needed a break but unfortunately the Democrats can't deliver that break as they are the greatest factor in government waste. Frankly it is time in this country for a third party that is focused on freedom and responsibility.

Dave

wizard
Feb 17, 2009, 06:07 AM
looking at pay stub

federal (withholding, med/ee and oasdi/ee): 24.8%
state (withholding and oasdi/ee): 5.3%

thats all that was taken out of mine per pay period

What you see as taxes when you work for someone else are really a lie. For some taxes the company has to pay a matching amount so your actual tax rate for things like social security is actually twice what you see on the stub.

I'd like to know what state you are in right now as state income taxes are all over the place. If you run into somebody you know is self employed you should ask them what their final tax bill is.

Dave

wizard
Feb 17, 2009, 06:09 AM
I'm not sure how much trouble it would be but a thread that is focused on the troubles in running a small business might be in order.

Dave

Cromulent
Feb 17, 2009, 06:44 AM
Frankly it is time in this country for a third party that is focused on freedom and responsibility.

Dave

From your last paragraph I assume that when you say freedom and responsibility you really mean stinginess and greed?

I don't begrudge paying taxes at all. I think they go to a good cause in general.

caveman_uk
Feb 17, 2009, 07:28 AM
Just beware that if you don't pay national insurance your state pension will be rubbish
It's rubbish if you do so it makes little difference (or at least not if you not going to retire for 30 years)

Gottaa
Feb 17, 2009, 09:05 AM
Benefits that depend on NIC contributions

Your entitlement to the following benefits and/or the amount you can get will depend on your (or in some cases your spouse or civil partner's) NIC contributions:

* Contribution based Jobseeker's Allowance (Class 1 NICs only)
* Incapacity Benefit (if you can't work for long periods due to illness or injury)
* Contribution based Employment and Support Allowance (ESA)
* State Pension
* additional State Pension (Class 1 NICs only)
* Widowed Parents' Allowance
* Bereavement Allowance
* Bereavement Payment

From the UK .gov site.

And while I'm only 35 and not looking at retiring just yet, the quicker you get money into your pension funds the better, just look at the difference between getting a big lump in at the start, compared to a big lump at the end, it really is a shock and the sooner people start pensions the better (another nice thing about having a company is you can pay quite alot into your pension without paying taxes, or at least you could). And for how much NI really costs imagine how you would feel if down the line you had some health issue which meant you couldn't work and suddenly you don't get any benefits/help (I speak from experience as I am partially signted and spent 3, almost 4 years unable to work with detached retina's/operations/follow up surgery/etc/etc). Take it from me PAY YOUR NI (if you live in the UK), for the tiny amount it is you really are much better off paying it (and having your own seperate pension fund)

Not really about programming but I'd like to impart some advice/suggestions where I can.

pilotError
Feb 17, 2009, 09:48 AM
Wait until you have an employee on the books. Then you have to pay Disability insurance and Unemployment insurance. Then take a look at Health benefits.

My income is a 60-40 split. 60% goes to the Government unfortunately. I have to pay Federal 3 days after writing out the paychecks. They want their money fast!

It's very expensive to run a small business in the US. I think somewhere on the order of 40-50% of the tax base is by small business. I find it amazing that the Gov't keeps making up more taxes and laws to drive us out of business.

bruinsrme
Feb 17, 2009, 09:51 AM
Yep we fell nearly $9k short in supporting the the government

detz
Feb 17, 2009, 09:52 AM
And being a programmer there are not that many deductions since it's a service not goods. 45% down the drain, so depressing

marcpage
Feb 17, 2009, 10:37 AM
Sounds like you'd prefer the Fair Tax:

http://www.fairtax.org/

Talk to your representatives today.

firewood
Feb 17, 2009, 12:40 PM
And being a programmer there are not that many deductions since it's a service not goods. 45% down the drain, so depressing

Another way to look at it is that the government pays for about half of everything one needs as a cost of doing business. Check with your accountant, but this possibly includes travel to developers conferences, shiny new Macs required for development and market research, broadband internet used for customer support, data plans, iphones and ipods used for long term software QA and competitive analysis, and etc.

ianal or aa.

rabbit19
Feb 17, 2009, 09:51 PM
A tax system where the richer you are the less you pay...interesting

OK this is only a small part of the story. This tax (and I agree it is a tax) goes into our US mandated social security fund. It is used to pay the pension from the govt people collect when they are older. Once you make a certain amount of income you don't have to pay it anymore for the year. The thinking being you have a cap on how much you can get from that fund.

rabbit19
Feb 17, 2009, 09:54 PM
Another way to look at it is that the government pays for about half of everything one needs as a cost of doing business. Check with your accountant, but this possibly includes travel to developers conferences, shiny new Macs required for development and market research, broadband internet used for customer support, data plans, iphones and ipods used for long term software QA and competitive analysis, and etc.

ianal or aa.


yeah that is definetely one way to look at it. I am writing off two macs, printer, iphone, ipod touch. Since I am in the second highest US federal bracket, and highest highest California bracket. That means a lot of stuff I would have bought anyway they are picking up the tab or part of the tab for dual use stuff.

Granted I'm using it for programming iPhone all the time and not recreational use.

NT1440
Feb 17, 2009, 09:58 PM
No offense everyone, but is this in the wrong section?

dejo
Feb 17, 2009, 10:12 PM
No offense everyone, but is this in the wrong section?
Not really. More or less talking about taxes for iPhone developers.

caveman_uk
Feb 18, 2009, 02:16 AM
OK this is only a small part of the story. This tax (and I agree it is a tax) goes into our US mandated social security fund. It is used to pay the pension from the govt people collect when they are older. Once you make a certain amount of income you don't have to pay it anymore for the year. The thinking being you have a cap on how much you can get from that fund.
Oh, so it's not an 'income tax' as such. It sounds a lot like our 'National Insurance'. That has a cap on how much you have to pay in.

detz
Feb 19, 2009, 07:08 AM
Oh, so it's not an 'income tax' as such. It sounds a lot like our 'National Insurance'. That has a cap on how much you have to pay in.

The cap is only on social security and medicare(goes to 2.9% from 15% at $102,000), state and federal taxes usually increase the more you make. Wikipedia has a great beakdown if you're really interested but in the US it's tiered so everyone pays the same amount in each tier.

http://upload.wikimedia.org/wikipedia/en/thumb/0/0e/US_income_tax_2008.svg/500px-US_income_tax_2008.svg.png

It's just a lot of money, this does not count taxes we pay on anything else. For example, after they take these taxes I have to pay 5% on anything I buy in the store, $0.30/gallon on tax, i have property and car taxes...etc. So, even after they take that 45% tax I'm stuck paying even more with the money I have left over. In reality if I wanted to work for myself I would have to bring in around $150,000 to live comfortably, not an easy task.

jnic
Feb 19, 2009, 07:32 AM
Here's the equivalent pretty tax graph for the UK (also from Wikipedia).

http://upload.wikimedia.org/wikipedia/commons/thumb/2/22/UK_tax_percentages_2008-9.svg/507px-UK_tax_percentages_2008-9.svg.png

I'd always assumed that taxes in the US were significantly lower by comparison, given that it's not a welfare state, but from reading Wikipedia it seems they're actually fairly close, mostly due to the Defence and Debt budgets.

Can't say I particularly begrudge paying tax though (except perhaps our own Defence and Debt slices). $150,000 seems an awful lot just to live comfortably, and $0.30/gallon in tax is downright cheap from this angle ;)

Jeremy1026
Feb 20, 2009, 11:01 AM
I just got my taxes done by H&R Block.

They made all sorts of deductions for me. Including internet bills, phone bills, iPhone, MacBook, Advertising (such as on review sites) and Web hosting.

Might be something to look into fella's.

Luke Redpath
Feb 20, 2009, 12:52 PM
Yeah, stupid isn't it?

In the UK if you want to avoid paying the top tax bracket (40% iirc) you setup a limited liability company and then you just have to pay 21% corporation tax and 10% dividend tax (rate goes up if you pay yourself more than 30k roughly).

I don't know if the same is true in the US.

Although its still worth paying yourself the national minimum wage (approx 11k) and taking the small income tax hit on it in order to meet your national insurance contributions.

I believe the higher dividend tax amount is about 32% so its still less than the higher PAYE tax (40%) so definitely worth doing if you are bringing in good revenue.

Luke Redpath
Feb 20, 2009, 12:54 PM
I was under the impression that HMRC had gradually made being a company less and less advantageous for those simply trying to avoid paying more income tax

Only if you are performing work under a contract that would normally see you considered as an employee (IR35 regulations). App store sales wouldn't apply in this case (but you should look into it if you are offering iphone dev services as a contractor).

Luke Redpath
Feb 20, 2009, 12:57 PM
It costs very little to setup a company in the UK, and the returns can be minor but it does all add up.

Back in 2000 when I used to run my own company it used to buy my gadgets, pay half my mortgage and bills (as my home address was my place of work) and paying myself a minimum wage I could live and occassionally take out dividends, I think now it's much less efficent as they tied up the loopholes but I imagine it would be worth it in the long run, especially if you are already close to or in the higher tax bracket

It's still worth it if you're earning a significant amount but you certainly won't be able to get away with things like claiming half your mortgage as an expense!

Note, IANAL or AA but my accountants recommend taking no more than the flat rate of 156 per annum to cover utility-related home office expenses (no receipts required) unless you can sufficiently prove otherwise (difficult).

You can of course claim things such as your broadband connection even if you use it for personal use (as long as it's in the business name and there is no way of distinguishing broadband/personal use), phone lines (must be in business name/for business use), computer equipment, software licenses, certain travel expenses etc. (not commuting though).

Luke Redpath
Feb 20, 2009, 01:03 PM
As a limited company you only pay 21% on your total turnover regardless of earnings.

I hope you meant to say on your total profit otherwise you're probably paying a bit too much corporation tax. ;)

It goes up to 22% in April btw.


Also if you pay yourself the maximum amount of tax free allowance (5,300 ish) a year salary then you do not need to pay national insurance or any other tax and I believe you can also claim tax credits. Then you just make up the rest of your salary with dividend payments assuming that the company is in profit.

Just beware that if you don't pay national insurance your state pension will be rubbish so make sure you keep paying into a private pension fund.

Or pay yourself the NMW as I mentioned above, which will cost you roughly 1000 in extra income tax.

One other benefit of being a small business is that it can be beneficial to register for VAT under the flat-rate scheme whereby you charge VAT at the standard rate (currently 15%) but only pay VAT on your total VAT-inclusive turnover at a fixed flat-rate (depends on your industry but currently 11.5% for IT services). You also get a further 1% discount in your first year.

Of course, the idea is that the money you make on the difference should cover any VAT you have paid over the course of the year but if you don't make many VAT purchases, it gives you a nice little bonus. Naturally, the opposite is true, and if you make a lot of VAT purchases you may end up out of pocket and should go on the normal VAT scheme.

Luke Redpath
Feb 20, 2009, 01:09 PM
And being a programmer there are not that many deductions since it's a service not goods. 45% down the drain, so depressing

Without your tax dollars/pounds then your country would probably fall apart so I wouldn't really say "down the drain". Taxation is a necessary evil.

admanimal
Feb 20, 2009, 01:39 PM
Without your tax dollars/pounds then your country would probably fall apart so I wouldn't really say "down the drain". Taxation is a necessary evil.

I think the depressing part is the amount of our tax dollars that get wasted. It would be much easier to swallow giving up half of what we make if we knew it would really go towards making our lives/the country better.

Drumerdude
Feb 20, 2009, 09:51 PM
I am still young and don't have a job. When I put my apps on the market I don't care right now that I don't make my full profit. I am getting money for doing something I like and I am able to spend it on new apple products. There are so many money advantages to being a minor.

pilotError
Feb 21, 2009, 07:56 PM
And being a programmer there are not that many deductions since it's a service not goods. 45% down the drain, so depressing

Another way to look at it is that the government pays for about half of everything one needs as a cost of doing business. Check with your accountant, but this possibly includes travel to developers conferences, shiny new Macs required for development and market research, broadband internet used for customer support, data plans, iphones and ipods used for long term software QA and competitive analysis, and etc.

ianal or aa.

There's still not very much to write off, even getting new Mac's every couple of months... Office Supplies (pens, stamps, stationary), Internet / Phone, Hardware purchases, MacWorld ;) , some other stuff, but compared to other industries, there's very little there. A percentage of one of your car's, but then you have to keep a log.

It's still worth it if you're earning a significant amount but you certainly won't be able to get away with things like claiming half your mortgage as an expense!


Be very careful if you try and write off a portion of your mortgage as part of your business (have an office in the house). If you owe taxes, Uncle Sam turns a blind eye and will take your house. Even in dispute, they'll take it and apologize later... Doesn't help when your living on the sidewalk...

Drumerdude
Feb 22, 2009, 11:26 PM
There's still not very much to write off, even getting new Mac's every couple of months... Office Supplies (pens, stamps, stationary), Internet / Phone, Hardware purchases, MacWorld ;) , some other stuff, but compared to other industries, there's very little there. A percentage of one of your car's, but then you have to keep a log.



Be very careful if you try and write off a portion of your mortgage as part of your business (have an office in the house). If you owe taxes, Uncle Sam turns a blind eye and will take your house. Even in dispute, they'll take it and apologize later... Doesn't help when your living on the sidewalk...

That's true. The government can be pretty cruel. Like Pilot Error said, "They'll take your house, and then apologize later."