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Sit with a CPA and learn the ropes in order to minimize your tax burden. On the surface, can't imagine that a seventeen-year-old working part time, unless they have some sort of "genius" product, would have any tax burden whatsoever after throwing ALL expenses into the equation.
But, we don't know the details....
I would also add that when using one of the pre-packaged tax prep programs, like TurboTax, it can be tricky to get the revenue and the expenses organized. They just don't do a good job of this type of 1099 situation.
Thanks again everyone. I have a basic cheat sheet list of questions that need to be asked and some CPA recommendations around town for her. What I have realized is that there are not many free resources once you get to this level. If you aren't a lawyer or CPA, you can't give "advice" and that includes me.
I hope at most basic I figure out if we are looking at in terms of her income to see how much effort she should put into this. I can't get a read on it because I don't know the tech. at all, and she knows very little about her own finances as she is still a minor. She is a smart young lady, so it isn't impossible she is making enough as a 1099 now, or in the near future, that expert help can get more money in her pocket. Baby steps.
Thanks again everyone. I have a basic cheat sheet list of questions that need to be asked and some CPA recommendations around town for her. What I have realized is that there are not many free resources once you get to this level. If you aren't a lawyer or CPA, you can't give "advice" and that includes me.
I hope at most basic I figure out if we are looking at in terms of her income to see how much effort she should put into this. I can't get a read on it because I don't know the tech. at all, and she knows very little about her own finances as she is still a minor. She is a smart young lady, so it isn't impossible she is making enough as a 1099 now, or in the near future, that expert help can get more money in her pocket. Baby steps.
Do you have any idea how much she grosses? Is that a number you/she would be comfortable in sharing?
How about that weird 50/50 split. Have you been able to confirm that she is paying taxes on the entire amount earned, or only on her royalties?
I really doubt that this is complicated. If her parents can't help her have her go to H & R Block. I watched them do my first tax return at her age and vowed I would never pay anyone again just to copy info from one form to another. I've done my own ever since.
He uses a free database website to enter expenses along with what he was paid. I'm not sure what site it is. If you're interested in it for her, I can ask him tomorrow for the URL. That may help her if she gets in the habit of entering everything weekly.
I agree that doing income taxes is not hard. She can sign up next year to work at one of those H&R block type places where they will train her. That should give her enough experience to do her own.
One of my high school teachers taught us how to do taxes.
What the OP's young friend is probably on about is the self-employment tax. Employees get half of that paid by the employer; contractors have to pay it all.
Personally I never found this onerous since contracting rates are much higher in general than employment hourly.
What is more painful for most folks is health insurance. An good employer-subsidized health plan might cost $150 or less a month; a plan on the exchange, at least here in NY, is about $525. On the other hand, employer-subsidized plans often serve as "golden handcuffs" at least psychologically, by keeping people working at jobs they don't really like.
1099 income seems more "in your face" tax-wise because instead of getting a check with taxes already withheld each week, and then possibly even a small refund in April, you have to pay those taxes yourself in a quarterly lump sum.
Given that virtually all employment is "at will" these days, I just regard 1099 vs W2 as different ways of getting paid though for the most part.
My basic advice to anyone doing 1099 work is make sure you pay your quarterlies on time (both federal, and where applicable, state and local), and learn to estimate correctly, so that you don't end up paying penalties at tax time because you under-estimated your tax liability.
The young lady does not need to file taxes this year. She talked with her family and between income totals and dependent status said she was fine for now. She did turn 18 late this month and decided to create an LLC and separate business account for herself to keep her 1099 income stream separate for the rest of her money. She made some business purchases, and I reminded her to keep receipts and see a CPA about business deductions. She seems convinced she can make money with this side gig and feels it is a constructive use of her time.
I think she is on a good track now and is set up for next year, so thank you all for the help.
The young lady does not need to file taxes this year. She talked with her family and between income totals and dependent status said she was fine for now. She did turn 18 late this month and decided to create an LLC and separate business account for herself to keep her 1099 income stream separate for the rest of her money. She made some business purchases, and I reminded her to keep receipts and see a CPA about business deductions. She seems convinced she can make money with this side gig and feels it is a constructive use of her time.
I think she is on a good track now and is set up for next year, so thank you all for the help.
Thanks for the update, but don't you think that this was a rather overhyped problem?
If she does not need to file taxes from a small business in the form of commissions, that means she earned less than $400 from this source for the entire year.
Thanks for the update, but don't you think that this was a rather overhyped problem?
If she does not need to file taxes from a small business in the form of commissions, that means she earned less than $400 from this source for the entire year.
How can she possibly be getting killed on taxes earning so little?
Good links. Also interesting is that a business isn't required to provide a 1099 unless the contractor earned at least $600, which is over the $400 requirement to file.
Thanks for the update, but don't you think that this was a rather overhyped problem?
If she does not need to file taxes from a small business in the form of commissions, that means she earned less than $400 from this source for the entire year.
How can she possibly be getting killed on taxes earning so little?
We work on student success/academic advising issues. The finance stuff only came up because she felt she may need to get another job, which impacts that and I thought I could help clear up her confusion about the 1099 status by doing some research and passing it on.
Well, TBH, I am not sure her family's advice is correct about her need to file, but that is out of my lane. All I can do is compile the information you guys gave me and pass it on. But yeah, either it was much ado about nothing or she should file and isn't going to. Sorry if it felt like a waste of time. I personally appreciate the responses though.
Last edited by westsideboy; 03-31-2022 at 04:05 PM..
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