According to the IRS you are a private contractor employed by Google
1–10 of 118 posts
Re: According to the IRS you are a private contractor employed by Google
#2It wasn't entirely clear from this article, but it looks like he was paying normal income tax on the money coming in, but failed to pay self-employment taxes. I have talked to more than a few iPhone developers whom this happened to as well -- forgetting about that extra 15.3% can really hurt.
But, did he remember to track and deduct all of his expenses? The flipside to that income is that the server costs are all deducted from it. If he really was "just barely covering costs" with his Google ads income, it should be 15.3% of nearly zero dollars. He may even be owed a refund if he was paying full income tax on the ad revenue without deducting server costs.
I am not an accountant, but I've dealt with SE tax and had a few "conversations" with the IRS in the past. For all the worries about them being biased, I've found them to be fair, as long as you have precise documentation.
Re: According to the IRS you are a private contractor employed by Google
#3It wasn't entirely clear from this article, but it looks like he was paying normal income tax on the money coming in, but failed to pay self-employment taxes. I have talked to more than a few iPhone developers whom this happened to as well -- forgetting about that extra 15.3% can really hurt. But, did he remember to track and deduct all of his expenses? The flipside to that income is that the server costs are all ded…
Agree the article is very vague on what he was doing when filing. Most likely he was not paying the self-employment taxes and get audited; however, like you said, he should have been deducting expenses. I am not an accountant or tax attorney, but I believe in this case, as long as he kept detailed records he can go back and refile. They may ask him for receipts and documentation, but that should be fairly easy to acquire from his hosting company. I have had to refile my tax return for a previous year, it was not part of an audit, just missed a 1099 and didn't realize it until the following year. My accountant took care of refiling and ended up getting a larger refund.
Re: According to the IRS you are a private contractor employed by Google
#4He's probably not nearly as SOL as he thinks. As others are already pointing out, he probably just needs to come at it as a "self employed individual". There is tax for this, but also many deductions. A few choice minutes with a tax professional would probably clear up most of his problems.
Unfortunately, those minutes would have been a bunch more helpful before he ended up with penalties for not filing, but again, a good tax professional can probably help him negotiate a more reasonable settlement.
Re: According to the IRS you are a private contractor employed by Google
#5The guy's a dumbass. If you're making money off your site, it's a business, just that simple.
It does cost a few 100$ every year, but if you get income from anything other than W-2 jobs, you'd better have an accountant.
I've definitely had little accidents in my filings and minor trouble with the IRS but my experience is that, with the help of an accountant and some common sense, these problems can be worked out easilyRe: According to the IRS you are a private contractor employed by Google
#6It's a simple reality: if you are collecting money by doing something, from a tax point of view it is almost certainly a business; even if you casually think of it as not-a-business.
But this person, if they put the brakes on the conjecture and so on, and instead go talk to an accountant, can probably get it all taken care. It will take work; it will probably be necessary to refile the last N years of taxes with the appropriate form on which to list both the business revenues, and business expenses (of which it sounds like there were plenty). He may even get some money back.
Of course, doing that work is much less fun than venting.
Re: According to the IRS you are a private contractor employed by Google
#7He should only have to pay self employment taxes on self employment income, which at $1500 & 15% indicates he was bringing in 10k / year in google ads, which seems reasonable with those traffic levels. That is hardly breaking even unless he was running it on a Cray.
The sorry fact is while you may think your tax rate is 15% or 25%, there is always that extra 15%, even for the employed. In employee's case, they pay half (FICA) and the employer pays half, which of course reduces real earning potential by that amount. It's a scam to talk about taxes rates and only quote the federal income tax rate.
Re: According to the IRS you are a private contractor employed by Google
#8It wasn't entirely clear from this article, but it looks like he was paying normal income tax on the money coming in, but failed to pay self-employment taxes. I have talked to more than a few iPhone developers whom this happened to as well -- forgetting about that extra 15.3% can really hurt. But, did he remember to track and deduct all of his expenses? The flipside to that income is that the server costs are all ded…
It seems crazy to me that it's even possible to accidentally pay "payroll" taxes on your income an not pay the extra self-employment tax. If you use any kind of tax preparation software, it's completely calculated for you. You just enter 1099s and W2s and everything comes together.
Re: According to the IRS you are a private contractor employed by Google
#9Where is that camz guy that was offering free tax advice for startups a couple weeks back? He may be the person to quickly consult, at least as far as what the next step is: http://news.ycombinator.com/item?id=1837299
Re: According to the IRS you are a private contractor employed by Google
#10I'm always amazed, when the-tax-system-sucks posts come up on HN, how quickly most commenters are to trash the author and/or lecture the complainer on how wrong they are.
There is a impedance mismatch at work in our system of governance that's not going away any time soon. The government makes laws by sticking people into little boxes and making rules for those boxes. This system of boxes and rules -- the tax code -- is becoming more and more removed from reality by the day.
You make 10K a year selling things at yard sale, nobody is the wiser. You make 10K selling pot, nobody is the wiser. You make 10K by putting little bits on a server somewhere, you're a business. Why? Because Google can report you, that's why.
You buy socks from Amazon from a house in one state, you have to pay taxes. Buy the same socks from another state, pay no taxes. Order overseas, no taxes no matter which state you are in.
In fact all of these are businesses -- or none of them are. It's like arguing about how many angels can dance on the head of a pin. We have this word "business" which has some kind of vague meaning, so we attach a bunch of rules to the abstraction.
We have a 1900s view of how things work that we are desperately trying to take a hammer and pound into a 21st century reality.
In point of fact, the economy works because people are constantly adapting to new circumstances, trying to do the best they can. As the rules get more and more complex, more and more people will end up being quite surprised at the situation they end up in.
Personally I think the system is broken beyond repair -- too many politicians are architecture astronauts -- but however it turns out, I have immense sympathy for the author of this article.