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The tax man cometh....
Thread poster: Ron Stelter
Ron Stelter  Identity Verified
Local time: 08:03
Member (2003)
German to English
Oct 12, 2007

Hello,

I live in the United States. I had filed an extension for my taxes so they were due by October 15th. So I did them last night filing online. So I filled in all the numbers and while the process was surprisingly easy, my "tax hit" at the end seemed to be enormous. My Federal tax was almost 25% of my gross income. My state tax (Kansas) was considerably lower-less than 5% of my gross income.

But the Federal tax was a killer. Particularly because in years past, I had filled the forms all out by hand to the best of my ability with a gross income of almost exactly the same amount. And the amount I owed for Federal ended up being just about half at about 12%.

Would 25% for just Federal be right? One of the problems that I have is I'm unmarried with no dependents and I have deliberately worked to keep my expenses low in general so it seems I'm being essentially penalized for trying to be frugal. By this point, already having a computer, I have very little in the way of ongoing business expenses. From the itemized breakdown of the Federal tax, it seemed about half of it was due to the fact that you don't have an employer helping to pay the social contributions and you have to pay all that yourself-which really sucks to high heaven. You know, you get essentially penalized for being self-employed which I don't completely agree with, but I guess that's a topic for a different day...

I was just wondering what other people with knowledge of U.S. taxes think. Perhaps a well-known tax preparation service like H&R Block, Jackson Hewitt, etc. is the way to go or some other online site? Or is physically still going into a tax preparer's office the way to go?

I know taxes are often plenty high in Europe, but we really don't have much of a social network here so often you feel you get very little benefit from the money you give the IRS. You just wave good-bye to it and never see it again...

Or any other suggestions about how to reduce my tax liability because otherwise it's going to be a constant pain in my side for years to come.

Everybody, please send me a couple of extra dependants if you have any to spare...:) OK, please don't...


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Kathi Stock  Identity Verified
United States
Local time: 08:03
Member (2002)
English to German
+ ...
yeah...taxes Oct 12, 2007

Here is one expense you can claim...going to a tax firm that helps you with the preparation and filing of your taxes (as well as filing for extensions, reductions, etc). At least, this is what I do. Peace of mind is important, after all. Plus you might get some pretty good advice

I also heard that the IRS tends to audit those self-employed people more that do their own taxes versus the ones that use a CPA.

You should also have a Roth account and a 401-K account (for self-employed). For example, I can contribute annually $15,000 to my 401-K plus up to 20% of my annual profit. At least that deferres taxes and reduces my tax base significantly.


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xxxLatin_Hellas
United States
Local time: 15:03
Italian to English
+ ...
401(k) and insurance deductions Oct 12, 2007

First, I'm not sure if your 25% includes FICA taxes or solely income taxes plus FICA. In any case, if you reached 25%, you must have had a good year.

As Kathi mentioned, first, get an accountant, especially one who knows about the individual 401(k). Then go to a good brokerage company and open one up, I think the maximum contribution this year is $44k ($15.5k in 2007 plus around 20% of net income, as mentioned). This by far and away can be your biggest deduction, and you are rewarded for being frugal and saving.

Second, look into the Health Savings Account. You can deduct both health insurance premiums and contributions to the account, I believe around $2500 for one person, around $5000 for a family, and the figure keeps going up every year, just like the minimum 401(k) contribution figure, again rewards for saving, both towards pension and health.

Do not knock the federal tax system too quickly without first knowing all the possible deductions and saving incentives that apply to you and, of course, comparing it with Europe. I find the US federal tax system to be fair, no complaints whatsoever: true it's complex, and learning what applies to you causes a headache for sure, but once you learn it, you realize how favorable it is to any kind of business, from the largest corporations to the smallest sole proprietorship.

My impression is that US residents are taking it, and will continue to take it, on the chin at the local level in many states, counties and towns/cities, not the federal level, unless the ruling classes implement a counter-reform to the 1980s reform of the federal tax system.

[Edited at 2007-10-12 15:52]


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Kim Metzger  Identity Verified
Mexico
Local time: 08:03
German to English
Move to Mexico Oct 12, 2007

I pay no income taxes at all. I pay no US income tax because any foreign earned income under $82,400 is excluded. I don't pay Mexican taxes because my income from translating comes from Europe, and I don't pay European taxes because I'm an American living in Mexico.

I have been paying US self-employment tax, but I'll get most of it back when I start drawing a social security pension on top of my current federal civil service retirement pension.

And living in Mexico is great. Mexicans tend to be very generous toward gringos.


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Ron Stelter  Identity Verified
Local time: 08:03
Member (2003)
German to English
TOPIC STARTER
Thanks so far.... Oct 12, 2007

There have been a lot of good suggestions so far. Kim's point was one that I hadn't considered. I live in the United States, but a full 99% of my agencies are located in Europe. I wonder if that works to my advantage???? My desk is in the United States, but that's all. Pure telecommuting....I wonder if there is some way that I wouldn't owe most of it to the U.S. Federal government or to my individual state of Kansas? Only a pittance of my income is earned from American agencies...Don't completely know why, but that seems to be how it works...I also have been translating full-time since 2002...

I used to go into an H&R Block office. They seemed to always ask me extensive information about my living circumstances. For example, I rent so they always wanted to ask how much I paid in rent, were trying to get me a fair deduction for food, clothing, etc. On this CompleteTax.com, they seemed to want to know something about my business expenses, but nothing about my personal living expenses. Or if I decide to claim the standard deduction, does all that become irrelevant? I always thought they asked that stuff and it was relevant, even if you opted not to file the itemized forms. I guess I'm wondering whether it's worth my while to go into an H&R Block or Jackson Hewitt place and have them look it over closely.











Ron Stelter wrote:

Hello,

I live in the United States. I had filed an extension for my taxes so they were due by October 15th. So I did them last night filing online. So I filled in all the numbers and while the process was surprisingly easy, my "tax hit" at the end seemed to be enormous. My Federal tax was almost 25% of my gross income. My state tax (Kansas) was considerably lower-less than 5% of my gross income.

But the Federal tax was a killer. Particularly because in years past, I had filled the forms all out by hand to the best of my ability with a gross income of almost exactly the same amount. And the amount I owed for Federal ended up being just about half at about 12%.

Would 25% for just Federal be right? One of the problems that I have is I'm unmarried with no dependents and I have deliberately worked to keep my expenses low in general so it seems I'm being essentially penalized for trying to be frugal. By this point, already having a computer, I have very little in the way of ongoing business expenses. From the itemized breakdown of the Federal tax, it seemed about half of it was due to the fact that you don't have an employer helping to pay the social contributions and you have to pay all that yourself-which really sucks to high heaven. You know, you get essentially penalized for being self-employed which I don't completely agree with, but I guess that's a topic for a different day...

I was just wondering what other people with knowledge of U.S. taxes think. Perhaps a well-known tax preparation service like H&R Block, Jackson Hewitt, etc. is the way to go or some other online site? Or is physically still going into a tax preparer's office the way to go?

I know taxes are often plenty high in Europe, but we really don't have much of a social network here so often you feel you get very little benefit from the money you give the IRS. You just wave good-bye to it and never see it again...

Or any other suggestions about how to reduce my tax liability because otherwise it's going to be a constant pain in my side for years to come.

Everybody, please send me a couple of extra dependants if you have any to spare...:) OK, please don't...


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Ron Stelter  Identity Verified
Local time: 08:03
Member (2003)
German to English
TOPIC STARTER
I think this whole issue of where your income comes from is very important Oct 12, 2007

I know I used to live in New Jersey, but commuted to New York City every day to work in an office. I paid almost nothing to New Jersey because I basically only slept there, but paid almost 90% of my Federal, state and city taxes to New York even though I wasn't a New York resident.

I'm not really sure how much this varies from country to country as far as their respective policies on income earned abroad.







Ron Stelter wrote:

There have been a lot of good suggestions so far. Kim's point was one that I hadn't considered. I live in the United States, but a full 99% of my agencies are located in Europe. I wonder if that works to my advantage???? My desk is in the United States, but that's all. Pure telecommuting....I wonder if there is some way that I wouldn't owe most of it to the U.S. Federal government or to my individual state of Kansas? Only a pittance of my income is earned from American agencies...Don't completely know why, but that seems to be how it works...I also have been translating full-time since 2002...

I used to go into an H&R Block office. They seemed to always ask me extensive information about my living circumstances. For example, I rent so they always wanted to ask how much I paid in rent, were trying to get me a fair deduction for food, clothing, etc. On this CompleteTax.com, they seemed to want to know something about my business expenses, but nothing about my personal living expenses. Or if I decide to claim the standard deduction, does all that become irrelevant? I always thought they asked that stuff and it was relevant, even if you opted not to file the itemized forms. I guess I'm wondering whether it's worth my while to go into an H&R Block or Jackson Hewitt place and have them look it over closely.











Ron Stelter wrote:

Hello,

I live in the United States. I had filed an extension for my taxes so they were due by October 15th. So I did them last night filing online. So I filled in all the numbers and while the process was surprisingly easy, my "tax hit" at the end seemed to be enormous. My Federal tax was almost 25% of my gross income. My state tax (Kansas) was considerably lower-less than 5% of my gross income.

But the Federal tax was a killer. Particularly because in years past, I had filled the forms all out by hand to the best of my ability with a gross income of almost exactly the same amount. And the amount I owed for Federal ended up being just about half at about 12%.

Would 25% for just Federal be right? One of the problems that I have is I'm unmarried with no dependents and I have deliberately worked to keep my expenses low in general so it seems I'm being essentially penalized for trying to be frugal. By this point, already having a computer, I have very little in the way of ongoing business expenses. From the itemized breakdown of the Federal tax, it seemed about half of it was due to the fact that you don't have an employer helping to pay the social contributions and you have to pay all that yourself-which really sucks to high heaven. You know, you get essentially penalized for being self-employed which I don't completely agree with, but I guess that's a topic for a different day...

I was just wondering what other people with knowledge of U.S. taxes think. Perhaps a well-known tax preparation service like H&R Block, Jackson Hewitt, etc. is the way to go or some other online site? Or is physically still going into a tax preparer's office the way to go?

I know taxes are often plenty high in Europe, but we really don't have much of a social network here so often you feel you get very little benefit from the money you give the IRS. You just wave good-bye to it and never see it again...

Or any other suggestions about how to reduce my tax liability because otherwise it's going to be a constant pain in my side for years to come.

Everybody, please send me a couple of extra dependants if you have any to spare...:) OK, please don't...


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Henry Hinds  Identity Verified
United States
Local time: 07:03
English to Spanish
+ ...
Learn it yourself Oct 13, 2007

Get the IRS publications and start learning it yourself. They are not that hard to understand. Then figure it out, don't let any BLOCKheads do it for you.

Once you learn the system, you are set for life.

If you're smart enough to translate, you should be smart enought to do your taxes.


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Marcelo Silveyra
United States
Local time: 06:03
Member (2007)
German to English
+ ...
This might help... Oct 13, 2007

I) I mean, this is -technically- advertising, but since I don't work for NOLO and it could be useful, I hope our respective moderator can let it slide this once:

Check out NOLO's "Working for Yourself" (by Stephen Fishman) if figuring out the IRS' explanations is turning out to be a royal pain in the...keister. It's pretty self-explanatory, contains a bunch of useful advice (including deductions), and should get you through your tax complications fairly well.

Also, and this is VERY important: The IRS states that you do not incur in penalties if you pay 90% of your last return's total tax in estimated tax. In other words...

Say you paid 8000 dollars in federal tax last year...

1) Multiply that by 0.9. 8000 * 0.9 = $7200.

2) Divide it by four (for your 4 estimated tax payments). 7200 / 4 = $1800

3) Voilá! You have to pay $1,800 in estimated taxes per quarter (by the dates specified by the IRS).

In other words, you don't have to pay estimated taxes on your current income - mainly because it's a pain in the...here we go again...keister to figure out your income before you actually earn it! (since two payments are made in advance, rather than after the three months). This advice should get you through the entire tax year: don't pay estimated tax based on your current income, but rather on 90% of last year's tax. It's a lot easier, and it lets you worry about deductions later on.

Do get that NOLO book, BTW. From your post, I think it might just turn out to be a lifesaver.


II) It doesn't matter if most of the work you do is for agencies in Europe. If your place of business (i.e. your home office) is in the U.S., you have to pay your taxes in (and to) the U.S. If you don't, and you get audited, you'll get in BIG trouble (sure, they can't put you in jail, but they can get tons of money from you).

More about the "place of business" thing:

-If you went to Paris for a couple of days to do an interpreting gig, your French employer would have to withhold taxes (for the French government) from your total pay, but you wouldn't have to pay taxes for that income in the U.S. This is because you would have done the work in Paris, not in the U.S.

-However, if an agency in Paris gives you work and you do it from home, or anywhere in the U.S. for that matter, you have to pay taxes on that income. There's simply no way around it.

Federal and state tax work differently, so the whole NJ vs. NY thing doesn't apply. Sorry!

III) I'm not gonna go into where federal tax is going with the current U.S administration, but let's say I'm far from happy with the way that money's being handled. On the other hand, I'm perfectly fine with California state tax...you probably get a lot more from state tax than you think!

IV) Kim, are you 100% sure you're not -technically- supposed to pay (Mexican) taxes in Mexico? Good to hear you're liking it there, BTW.

V) Henry, who said you (I don't mean you you) have to be smart to translate?

[Edited at 2007-10-13 10:33]

[Edited at 2007-10-13 14:23]


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Ron Stelter  Identity Verified
Local time: 08:03
Member (2003)
German to English
TOPIC STARTER
You are NOT set for life... Oct 13, 2007

There are plenty of people who find tax laws confusing and who spend hours and hours wading through this quagmire of instructions and forms. Not to mention the fact that rules and laws change all the time from year to year.





Henry Hinds wrote:

Get the IRS publications and start learning it yourself. They are not that hard to understand. Then figure it out, don't let any BLOCKheads do it for you.

Once you learn the system, you are set for life.

If you're smart enough to translate, you should be smart enought to do your taxes.


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linguadois
Local time: 09:03
English to Spanish
+ ...
use tax software Oct 13, 2007

I've been doing my income taxes using tax software for years. Turbo Tax, for example, is very good for freelancers. I also agree with Marcelo regarding the need to learn as much as you can about taxes. In my case, I've been working as a freelance interpreter for almost 10 years and I had to learn which expenses are tax deductible and which ones are not. Now I use an accordion type file folder to keep all my receipts for expenses that I know are deductible and I separate them in categories such as office expenses, parking, educational expenses, phone and internet expenses, etc. At the end of the year I have everything already catalogued and I'm ready to enter the information in my Turbo Tax software. Turbo Tax also tells you how much you need to pay in estimated taxes and looks for additional deductions that you might be entitled to such as a home office deduction, if you qualify, you could deduct a portion of your homeowners insurance, electric bill, etc.
If I were you I would give it a try and learn about taxes, it is not that difficult. The IRS has lots of information online and there are also publications and books that you can borrow from your local library. Believe me, it pays off to spend a little time learning about your tax situation. Once you do, tax time will be less stressful.


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Henry Hinds  Identity Verified
United States
Local time: 07:03
English to Spanish
+ ...
Smart Oct 13, 2007

True, Marcelo, one does not have to be so smart to try translating, but to be succesful at it... well, that does take a lot of brains and a lot of effort.

The tax situation certainly is complicated, however I have found that IRS publications are among the few things of that kind that are actually reasonably well-written and fairly clear. They must run the text past a lot of people before they use it. Furthermore, once you figure out the complications referring to your own situation, you can then follow the same path you did the year before.

Each year you may come to a few changes along that path, and they will be explained. But mostly it will be the same. Now and then your situation could change (a new investment, buying/selling property, a new source of income, etc.) and that will require some extra study.

Bot once you get the hang of it you can do it. Do not be afraid of making mistakes; I have also done that. They will not put you in jail; they do not want to punish you for honest mistakes; what they want is the money. If they are right (they usually are), then just send them the money, period.

It's much more work to keep records, sort them out and present everything to a tax preparer who may know less than you do.

After all, to be successful in translation, you do have to be smart, but to be a tax preparer all you need is to be breathing. To you want to trust that? I sure don't.


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