Give Caesar his due.
If you aren't trying to make money, you may be able to report it as a hobby, deduct your expenses and avoid self-employment tax.
According to the IRS you are a private contractor employed by Google
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Re: According to the IRS you are a private contractor employed by Google
#32It 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.
I think you're confused. "Payroll tax" and "self-employment tax" are both informal ways to refer to the employers portion of social security tax (FICA). It sounds like this guy was paying income tax on it, but not social security or medicare (which is about 15% total for self-employed).
This is an entirely reasonable mistake because that is the correct way to do taxes on unearned income like interest. Only earned income is subject to social security and medicare.
Re: According to the IRS you are a private contractor employed by Google
#33Perhaps this is a startup idea for the ambitious types on HN. There are literally 1000's of very successful blogs making some marginal amount of money from ads on their site. Most of these bloggers are not in it for the money and would like a publisher to take care of the business side of things, including the taxes. Perhaps this already exists but I am not aware of it.
Re: According to the IRS you are a private contractor employed by Google
#34I'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 --…
If you sympathize with the tax code it's probably because you've never bootstrapped a start up. It's hard enough to make it, even without financing the government. A high quality of living is enabled by technology and innovation, and the process that stifles innovation - taxes - should be regarded with extreme caution. If trading with each other is a taxable offense you can expect a severe impediment on innovation. Does anyone really need examples of the failures of centralized economies?
Re: According to the IRS you are a private contractor employed by Google
#35The income tax system, and the principle of taxing income, is wrong in so many ways, but I have given up arguing the point. The inertia of the system and the inertia of individuals is too great to overcome. I've identified these major contributing factors:
1) Vested interests that like the tax system the way it is.
2) Envy and fear of envy. People who think the income tax takes from the rich, and people who happily pay their fair share because they have guilt feelings about their level of income, and think others should too.
3) The last reason is the overwhelming majority think of the income tax system as THE natural and logical system for raising revenue, having no clue about how it came into being and evolved.
Re: According to the IRS you are a private contractor employed by Google
#36I'm curious though- could have all of this been fixed by filing and saying, "look, our expenses 100% meet our income... no tax burden!"?
If he had incorporated, absolutely. From the context of his blog, it seems he didn't.
I'm pretty sure you don't need to incorporate to take deductions on self-employment expenses. Self-employed income isn't just a free ride to a kick in the balls - if you're paying that extra 15%, you get to take expenses as deductions. If it's low-level income that is just covering expenses, you're not going to owe the IRS a dime.
Re: According to the IRS you are a private contractor employed by Google
#37You should have sought for a professional tax preparer's advice. Any professional would have seen your mistake immediately.
You have your regular w2 form's amount from work. Any additional money you tacked on as additional income, the tax professional would have questioned where this extra money is coming from.
He or she would have identified that you got extra money as a business (you do not need a business license) but you must file this in a different form and pay the appropriate taxes (including social security, medical, and the other business-related taxes). The tax professional would have asked you for possible deductions and you could have deducted all your business income from it.
There's nothing unfair about this. IRS is doing the right thing. It's really your fault for getting a crappy tax professional or for doing your taxes yourself. And to add, tax professionals aren't even that expensive.
Re: According to the IRS you are a private contractor employed by Google
#38Yes, the US tax system is too complex... but I find it really hard to believe that he didn't make a large profit with 50,000 page views per day with a relatively static PHP site (hosting cost probably $10/month).
Re: According to the IRS you are a private contractor employed by Google
#39What level of tax professional does someone in the OP's situation need? Will a trip to the local H&R block sort it, or does he need to look for someone more specialized and if so, how would he identify them?
Re: According to the IRS you are a private contractor employed by Google
#40I'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 --…
Order overseas, no taxes no matter which state you are in
This is not entirely true, I ordered a good deal of hand carved furniture from India one time and a hand carved bed from China another, both times I received a letter from the State of Florida letting me know exactly what I owed the state in taxes.