1099-Misc -> how to avoid SE ?

Not on the consultant income, which was self-employment.

That sounds about right. S/E tax is roughly 16% of your Schedule C bottom line when you don't go over the SS earnings limit (approx $100K for 2008).

"Gary" wrote

Avoid? No. Reduce? Yes.

What expenses did you incur to generate the $53,600 of income? Travel, lodging, business driving, office supplies, business meals, telephone expenses, computer, printer....? Did you have a home office? There's usually something. And if there is something, there's usually more.

All ordinary and necessary expenses related to the business that are not prohibited under the tax code are allowed deductions on Schedule C to reduce that income and the associated taxes.

Take a look at Publications 334 and 583. If you need to, make an appointment with a CPA or EA local to you to assist you through this tax filing.

"Gary" wrote

For 20 years my life was a series of 1099's, 179 items, and a slew of business expenses. The advantages of being self-employed are keeping your own hours, not having a 2% threshold for deducting misc business expenses, and getting the business rate for some mileage. The secret is good recordkeeping, tax planning, and having someone else deal with the IRS if the question anything.

The major problem most people (self-employed or not) is that tax planning after-the-fact is both inefficient and costly. Get all your records together, catorgize your expenses, and (at a minimum) run them past a seasoned tax professional (preferably a CPA, an EA, or a tax attorney).

I have not prepared my own tax return in at least 40 years. Matter of fact the only tax returns I have prepared were for women I was trying to con into believing I was a good catch. If you don't have a tax pro, ask your doctor or dentist who does their taxes.

For 2009, start your tax planning NOW.

Dick

It is kind of interesting that recent discussion in the news indicates many do not pay it. It seems worst case you get audited and have to pay the amount owed with interest (4 or 5% in recent years). No penalties, though. Seems like something Congress should fix.

wrote

It's more than that. Late payment/underpayment penalties often apply, and if the amount you are short by is significant, watch out.

Well I sure would appreciate a citation. I have several news reports from last week on an individual who was caught not paying the SE tax. The SE taxes that were eventually paid and the interest are reported to the dollar in these reports. The interest is on the order of 4-5%. The amount of SE taxes owed (before interest) was over $30k. The articles say that the IRS charged no other fees (penalty or otherwise).

The interest of course will vary over the years, since federal interest rates change.

Not to discourage people from paying SE taxes. These taxes go into one's personal Social Security and Medicare accounts, after all (with some limits, depending). AFAIC, Social Security and Medicare are not- so-bad supplemental retirement plans.

One way they are avoided is to arrange to have some of your income in capital gains, dividends, and interest. Unfortunately you cannot recharacterize income at will, and must treat it according to circumstances, so for the average person this doesn't help. Still, a worker avoids the 2.9% Medicare tax on the gains on their stock grant, even if they've maxed out on SE tax otherwise.

Steve

If the original return was filed late, late filing penalty is assessed on any deficiency. Late payment penalty doesn't apply to deficiency assessments unless you don't pay within x days after it's assessed. (Used to be 10--haven't looked in years.) Unless the deficiency is enough to get you into the accuracy-related penalties, there's no penalty that applies.

Failure to Pay Tax Penalty does not accrue on tax not shown on the return until that tax is subsequently assessed by adjustment, audit, amended return, etc.

See: IRM 20.1.2.4 and IRM 20.1.2.5

Failure to Pay Tax ? IRC section 6651(a)(2) is imposed if the tax shown on any return is not paid by the due date of that return (excluding extensions.)

Failure to Pay Tax ? IRC section 6651(a)(3) is imposed on any tax required to be reported on a return that was not reported on the return. The FTP penalty under IRC 6651(a)(3) relates to amounts subsequently assessed (usually TCs 290 and 300), unlike the FTP penalty under IRC section

6651(a)(2) that relates to unpaid amounts showing due on the return as originally filed. For subsequent tax assessments after December 31, 1996, the FTP penalty under IRC section 6651(a)(3) begins 21 calendar days (or 10 business days if the total balance due equals or exceeds $100,000) after assessment (23C date.)

Re the IRS imposing penalties beyond interest for failure to pay SE tax: much snipping for brevity; please look back

Correction: The news reports I mentioned earlier say "The IRS waived penalties... " So it sounds like your citations apply. To me the question then becomes: Under what circumstances does the IRS waive penalties for failure to pay SE tax? What is the IRS looking for to exculpate someone from paying other than interest? And lastly, can one present to the IRS a seemingly egregious instance of one taxpayer initially not paying SE tax, and yet not being assessed IRS penalties, and ask to be treated in the same way?

(I am avoiding naming anyone here--I have been cautioned by the moderator to keep specific names out of this so as to avoid off-topic political noise. Still, ISTM to be a curious tax case that arose recently. The only consensus online seems to be that bloggers and other commentators are scratching their heads about how this person has been excused. Is it customary for the IRS to view failure to pay SE taxes as really not a big deal? Maybe because it is the taxpayer's loss insofar as future SS and Medicare are concerned?)

I believe the "waived penalties" quote was used in its generic form by an uninformed writer. In the case of a subsequent audit or amended return assessment, no penalty is imposed if the previously unreported tax is paid within 21 days of notice and demand, so there would be no penalty to waive. If the underpayment is determined to be fraudulent, fraud penalty may apply.

Everyone knows who we are talking about. (I'm not sure why naming names, or even roles is verboten here, even in the absence of any editorialization -- but with a moderated newsgroup, you're stuck with the gestalt.)

In any event, I was under the impression that $34k under discussion was for unpaid SE taxes that The Nameless One decided not to pay because they were for a period outside the time limit within which the IRS could request them. He then decided to pay that money only after it became clear that a legislative body would be going over his tax records in minute detail.

snip

I think this is quite possible but it is hard to say. I should have noted that the quotation comes from a report from the U.S. Senate Finance Committee. The Committee said it wanted to provide transparency via providing copies of documents related to the individual's tax situation. All that is said that may be relevant to the FTP penalty is that (1) the individual was contacted in May of

2006 about owing SE taxes for 2003 and 2004; and (2) sometime in 2006 the individual paid the SE taxes plus interest for these two years.

At a minimum what I think we can conclude is that the SE taxes owed for 2003 and 2004 were detected and then these taxes plus interest were paid in less than eight months. Maybe the penalty was waived or, as you say, maybe all monies owed were in fact paid within 21 days.

Back to what initiated this discussion. It seems if one makes a mathematical or clerical error (IRS wording); failing to pay SE taxes that with interest total less than $100k; is caught by an IRS audit; and pays the taxes and interest due within 21 days (as you kindly noted twice); then s/he will not be subject to any penalty.

I vented a bit in my first (rejected) submission. I can see how doing so might come off as political. Fact is I voted for Mr. Obama, and support his moves in general, but like lots of folks I am surprised that in this instance he and about 2/3rds of the Senate would overlook... you know the rest. So I am really curious if people with tax expertise see something I do not **on this particular point re SE taxes**.

He then decided to pay that money only after

In 2006 after an IRS audit, he paid $17k of SE taxes plus interest for tax years 2003 and 2004. In late 2008, he paid $26k of SE taxes plus interest for tax years 2001 and 2002. He legally was not obliged to pay the taxes and interest for 2001 and 2002 but did for the reasons you give above. This is from a "just the facts" type report linked at the Senate Finance Committee web site.

I do not want to go on a political tear here. To promote fairness, I do think taxpayers like the OP should have all the facts on the SE tax. You owe it, you should pay it. You think you do not owe it, then do not pay it, but know the consequences, including shortchanging your personal Social Security and Medicare accounts.

The SS part, yes. The Medicare part, no.

You just need to have the salaried jobs add up to the SS limit.

Seth

Is that considered a deductible donation to the US Treasury?

Seth

Finally, someone asked the burning question! Well done, Seth. And my answer is... Mechanically, Section 170 allows the deduction for this "charitable contribution" to the United States. But wouldn't there be a problem with the taxpayer's *motive*? I mean, this "gift" wasn't motivated by charity and generosity, it was motivated by ambition and puppydog-like eagerness to serve...

Why is motive relevant? I'm sure people who donate millions of dollars to a college to get a building named after them are doing it for ego rather than "charity and generosity", and I'm sure those donations are deductible.

Seth

,

Why is that a payment beyond the SoL? The limitation period on collections is 10 years.