Paying Estimated Taxes Again

Paying Estimated Taxes AgainFor estimated taxes only (1040 ES) and only if enclosing a payment, the mailing address for the IRS is:Internal Revenue Service [see note below] P.O. Box 802502 Cincinnati, OH 45280-2502Actually, in 2011 they started wanting me to send it to:Internal Revenue Service [Actually, don’t print an envelope at all] P.O. Box 7704 [Use vouchers & envelopes they provide] San Francisco, CA 94120–7704 [But write check to U.S. Treasury, not IRS!](But only if I was sending it in with Form-1040V, which I usually do. If I’m sending it with no form, it should go to Department of the Treasury / Internal Revenue Service / Fresno, CA 93888-0002)For estimated taxes for Colorado, the mailing address is:Colorado Department of Revenue 1375 Sherman St. Denver, CO 80261-0008 Link to IRS Estimated Tax Voucher Form: http://www.irs.gov/pub/irs-pdf/f1040es.pdfLink to Colorado Estimated Tax Voucher Form for 2007: http://www.revenue.state.co.us/PDF/07104ep.pdf Due Dates:Period Due Date1st Quarter April 152nd Quarter June 15* * For April & May only 3rd Quarter September 15** ** For June–August 4th Quarter January 15Page | 1 Q3 2006On September 11, 2006 I mailed off two money orders for estimated taxes, one to the IRS and the other to the Colorado Department of Revenue. These were taxes on my income received from freelance work during the month of August: $975.To the federal government: $146.25 (which is 15%) To the Colorado government: $ 45.34 (which is 4.65%)I left NavPress on August 3, 2006, btw.Page | 2 Q4 2006On January 3, 2007 (five months to the day after I left NavPress, btw), I sat down to figure out what I owed this time. The income I received from freelance work in the months of September, October, November, and December of 2006 was $11,034.79. My total taxes (fed and state) is 19.65%, so my total hit will be: $2,168.34.If I owe 15% to the federal government, I owe them: $1,655.22 If I owe 4.65% to the Colorado government, I owe them: $513.12I got a check from the bank for $1,655.22 written to The United States Department of the Treasury. I couldn’t figure out who to write the check to, so that’s what we (me and the bank ladies) chose. That same day (1/4/07) I got a money order for $513.12, which I wrote out to the Colorado Department of Revenue.Both payments went out in the mail on 1/5/07.Tatelesti. On 3/4/07 I prepared my 2006 federal and state taxes (using TurboTax online). It showed I was to receive a refund of $899 from the IRS and $290 from the state of Colorado. Unfortunately, they charged me a whopping $90 for the service and refund processing fees, but with $1,099 still coming, I was feeling generous.Very soon I need to prepare my taxes for the first quarter of 2007. [Well, okay, but actually the taxes for the first quarter of the year are not due until April 15, not March 15, as you were assuming in this note.]Q1 2007On 4/7/07 I sat down to figure what I owed for the first quarter of 2007.My records show that I’d made $11,283.80 in that quarter. According to the 15%/4.65% figures, that means I owe $1,692.57 to the IRS and $524.70 to Colorado. I had withheld $915.00 in envelopes, leaving $1,302.27 that I still need to take from checking.My intention is to get a check from the bank for $1,693 written to The United States Department of the Treasury and a money order for $525 written to the Colorado Department of Revenue.On 4/12/07 I fulfilled that intention and mailed off both checks. Page | 3 Q2 2007On 6/11/07 I went to the bank and got a money order for $588 for Colorado and 1,898 for the IRS.That’s actually a tiny bit high. I accidentally included $451.40 (Colorado Christian Writer’s Conference earnings) and $250 (Mike Nappa prize) in this quarter that I received in June and therefore didn’t owe taxes on until Q3. Alas.I owed 2,485 in total taxes and had withheld $1,710, so I had to withdraw the extra $700.Q3 2007Here’s what I think I owe:Jon Nappa 1 343.88 Clubhouse 93.34 George 1 982.50 George 2 736.88 Bill Campbell 49.13 Rita Hancock 125.27 Sheila Lickford 1 20.63 John Hough 14.74 Jenness Peak 19.65 Bo Ohman 57.18 Sheila Lickford 2 20.63 Nathan Williams 1 14.74 Abraham Lincoln 306.54 Destiny Hicks 14.74 Heather Gemmon 1 117.90 Heather Gemmon 2 117.90 Michael Tanner 14.74 Erin Healy 49.13 Sherrie Lord 17.69 Darlene Applegate 1 22.60 Darlene Applegate 2 14.74 Sonja Hutchinson 1 5.90 Nathan Williams 2 19.65 Jon Nappa 2 14.74 Sonja Hutchinson 2 14.74 Melissa Craig 117.90 Kristen Stieffel 14.74Page | 4 Sonja Hutchinson 3 5.90 Learning Rx 1 107.58 Learning Rx 2 74.87 Learning Rx 3 73.69 ClickBank Payout 12.74 Total $3,617.00Over this time I had withheld $3,360. So I’ll still have to withdraw $257.Of the $3,617 total, $3,110.62 is owed to the IRS and $506.38 is owed to Colorado.I think I’ll get a check for $3,110 to the IRS and for $506 to Colorado. I’ll make sure the rest is paid come April 15.On 9/11/07 I went to the bank and did exactly that.Q4 2007Here’s what I show I owe:Project IRS Colorado Total Mae Chambers (Joyce's Friend) / $500.00 $75.00 $23.25 $98.25 Can My Marriage Be Saved? Co-Write Coaching Book with $3,750.00 $562.50 $174.38 $736.88 George Solovjev--Payment 3 Co-Write Coaching Book with $3,750.00 $562.50 $174.38 $736.88 George Solovjev--Payment 4 Cho Larson's editorial review $500.00 $75.00 $23.25 $98.25 Bo Ohman's editorial review-- $215.26 $32.29 $10.01 $42.30 Chunk #3 Abraham Lincoln book 2 of 2 $2,124.00 $318.60 $98.77 $417.37 Michael Tanner's next chapter $75.00 $11.25 $3.49 $14.74 review Alan Schliemer's editorial review $800.00 $120.00 $37.20 $157.20 Julee Schwarzburg's full edit / John Bolin / The Eden Project / $1,750.00 $262.50 $81.38 $343.88 Payment 1 Dean Drawbaugh's editorial $200.00 $30.00 $9.30 $39.30 review Austin Boyd's character and plot $700.00 $105.00 $32.55 $137.55 review Rita Hancock's ongoing $1,750.00 $223.13 $69.17 $292.30 consulting work--Installment 3 Mae Chambers Payment #2 $1,000.00 $150.00 $46.50 $196.50 Mae Chambers Payment #3 $1,000.00 $150.00 $46.50 $196.50 Ruben Soto's Review $75.00 $11.25 $3.49 $14.74 Michael Tanner's First Chapter $57.96 $8.69 $2.70 $11.39 Review $2,697.71 $836.32 $3,534.03 IRS Total State Total Total Total Page | 5 Here’s how much I’ve withheld: $3,303.Leaving $231.03 to be withdrawn from the bank.I toyed with the idea of simply paying what I withheld and hoping the other $231.03 would be absorbed by how much I’ve possibly overpaid in taxes. But since this is the first full year I’ve been freelancing, I don’t actually know if I’ve overpaid or not. When I do my annual tax returns in April I’ll have a better idea of how much I owed and therefore what percentage I actually need to withhold during the year. For now, I’d better play it safe.So I will go to the bank and get a check for $2,698 to the IRS (United States Treasury, actually) and another for $836 to the Colorado Department of Revenue.Wait a minute! Something’s screwy with the math here. Last quarter I owed almost the same amount total but the IRS and state checks were wildly different. Why?Last time my total tax liability was apparently: $3,617 This time my total tax liability is apparently: $3,534Last time I showed that I owed the IRS this much: $3,110 This time I show that I owe the IRS this much: $2,698Last time I showed that I owed Colorado this much: $506 This time I show that I owe Colorado this much: $836What’s up?Okay, let’s go back to our percentages: $3,617 is 19.65% of what? o $18,407.12 . This must be how much I made last quarter.  15 is what percent of 19.65? o 76.34% . Meaning that 76.34% of $3,617 should’ve gone to the IRS, and the remaining 23.66% of the $3,617 should’ve gone to Colorado.  What is 76.34% of $3,617? o $2,761.22 . That’s how much I should’ve sent to the IRS. . But I sent $3,110. . Which means I overpaid the IRS but I drastically underpaid Colorado.  How much is 23.66% of $3,617? Page | 6 o $855.78 . That’s how much I should’ve paid to Colorado. . But I actually sent $506. Yikes.  Where did I get those stinking numbers?Okay, damage control.  I should’ve paid the IRS $2,761, but I actually sent $3,110, which is $349 too much.  I should’ve paid Colorado $856, but I actually sent $506, which is $350 too little.  I sent to the IRS $350 that should’ve gone to Colorado.Simple fix: send Colorado $350 more this time and the IRS $350 less.That means I would send the IRS not $2,698 but $2,348. And I should send Colorado not $836 but $1,186. The total is still the same. I’m just playing with distributions within the total.Am I sure, sure, sure about these numbers? I mean, I thought I was sure before when I sent the wrong amounts. Am I sure now? Oh, and wait: don’t forget your non-standard thingies for which you must pay tax! Argh!That actually means I’m in trouble. Because I withheld $200+ shy of just what I made in my freelancing business. I apparently didn’t withhold nearly enough to cover these non- standard things. Man, I hate this.Non-Standard Thingies:Federal Total Taxes State Taxes Amount Taxes Owed Owed Owed LearningRx Paycheck $705.00 $138.53 $105.75 $32.78 ClickBank Payout $56.03 $11.01 $8.40 $2.61 LearningRx Paycheck $420.00 $82.53 $63.00 $19.53 LearningRx Paycheck $705.00 $138.53 $105.75 $32.78 ClickBank Payout $48.08 $9.45 $7.21 $2.24 Reagen Reed 15% $54.00 $10.61 $8.10 $2.51 ClickBank Payout $64.80 $12.73 $9.72 $3.01 LearningRx Paycheck $405.00 $79.58 $60.75 $18.83 $2,457.91 $482.98 $368.69 $114.29This is bad.Okay, deep breath. Let’s look at this.Amount I made this quarter: $20,705.13 Amount of that owed for taxes: $4,068.56 How much to IRS: $3,105.94 How much to Colorado: $962.62 Page | 7 How much I withheld: $3,303.00 How much I must withdraw: $765.56Now let’s throw in the $350 switch. I’ll pay $350 more to Colorado this time and $350 less to the IRS. New numbers:To the IRS I owe: $2,756 To Colorado I owe: $1,313It’s not the end of the world, Jeff. At least you withheld $3,300, for crying out loud!So I’ll go to the bank and pay cash to purchase a check to the United States Treasury for $2,756. Then I’ll pay the remaining cash toward the check to the Colorado Department of Treasury, but I’ll have to withdraw at least $766 on top of the cash I’ll have left. Ouch.On 1/10/08 I went to the bank and got an “official check” for $2,756 to “U.S. Treasury” and another official check for #1,313 to “Colorado Dept. of Revenue.” Mailed them out the same day.Moving into 2008When I sat down to do my taxes for 2007 I realized I hadn’t shown enough information. I did better for the fourth quarter, but I should’ve done so the whole time.Some of it I can’t do along the way because I don’t know who’s going to give me a 1099- MISC and who isn’t.What I needed was the ability to track:  Total income for the quarter  Income not reported in 1099-MISC forms (usually those jobs not done for a publishing company)  Estimated taxes paid for that quarter—federal  Estimated taxes paid for that quarter—stateSometimes I didn’t write down the name of the company, either, so I would have a contact name but couldn’t remember who that person worked for to know if I’d gotten a 1099 from that person/company or not.It was most helpful to have both this Word file and a spreadsheet showing my income and taxes from that quarter (including the non-standard thingies). So do that.Something’s WrongThe first time I told TurboTax about my income and deductions, things were definitely whacked. It appeared to be showing my 1099-MISCs twice, giving me way too much Page | 8 income and therefore owing $3,000 in taxes beyond what I’d sent off for estimated taxes already. But if I removed the first set of 1099-MISCs, hoping to leave only the second showing of them, it removed both, meaning that the IRS owed me $6,000 in refund, which also can’t be. Finally, even if it wasn’t showing the 1099s wrong, it still showed me with a total of over $75,000 income, when my records show more like $65,000.As I’ve been refiguring it, I did learn that CLW Communications Group is AMG Publishers. That’s helpful, because I certainly included the CLW 1099 MISC and the money earned from AMG as two line items, though they should’ve been only one. Still trying to figure out the rest. I can’t possibly owe $3K on top of what I’ve already sent. That would’ve meant I should’ve been sending off something like 33% of my total income.I’ve been wondering if maybe I haven’t been paying Social Security and FICA. Not intentionally, but just because I didn’t know how to figure it. The 19.4% total tax I’ve been figuring is based on my own observations of the past, but maybe that percentage is way off. What I may end up doing is fiddling with the “income not reported on any 1099-MISC” amount so that my total between 1099s and not is what my records show, then seeing what I’m left with.Okay, fiddling with that other income has resulted in a total that looks close enough to what I actually paid. But I’m left owing $936 federal (and who knows how much to state). I ended up having to change my not-recorded-on-1099s amount from $31,792 to $27,084 to get it to show $68,942 as my actual “total total” (instead of the $69,125 that was our true total total or the $75,000+ it said was my total total). There was a lot of guestimating involved in even getting this close to the actual total total.I found that the total taxes it showed we owed was 15.54% of what we earned. I’d been assuming 15% and, it turned out, paying only 14.14%, which leaves me with a discrepancy of 937.59, which is close enough for me to the $936 it shows I owe beyond what I paid. So, going forward, I need to send 15.5% (or, better yet, 16%) to the IRS every quarter.I have learned (from http://www.irs.gov/formspubs/article/0,,id=150856,00.html) that I’m in the tax bracket of above $61,300 but below $123,700. In that bracket, I owe $8,440 in taxes on my taxable income plus 25% on every dollar above $61,300.That’s good to know for 2008.Page | 9 For 2007, I earned $66,870 for the year in (what I think is my) taxable income. That’s $5,570 above the $61,300 that is the threshold for this tax bracket. So I owe $8,440 plus 25% on that $5,570, which is $1,393. That puts my total tax obligation at $9,833. Since I actually paid $9,457, I underpaid by $376.Okay, no biggie. So then why does TurboTax show I owe $936 beyond what I already paid? That’s a big difference.I’m using TaxCut nowTaxCut tells me that the self-employment tax rate is 15.3%. That’s nice to know. It also says that this rate covers Medicare and Social Security, which is very nice to know since I thought maybe I had omitted paying those things.Well, here’s what it says: Half your self-employment tax is deductible  Self-employment income is multiplied by .9235 before the tax rate is applied  Self-employment income over $97,500 is taxed at 2.9%  If you also were an employee, you get a credit for any Social Security tax withheld from your wagesRandom note: $54,201 gross income from editing during 2007.After working TaxCut, it told me two things. First, it told me I owed a total of 12,000+ in taxes. Then it told me, based on my income, that I owed just over $9,000 in self- employment tax. I entered my estimated tax payments, which came to $9,457. According to that, I’m owed a refund of $300–400. But I guess the original $12,000+ came into play, because then it told me I still owed $2,000+ in taxes (which was the $12K+ amount minus the estimated taxes total I’d paid).This was confusing, so I contacted the TaxCut chat help system. This is the transcript of the chat I had on Leap Day 2008 (note that what doesn’t appear is my initial description of the problem, including the exact amounts involved):You have been connected to Amber C.. Amber C.: Hello Jeff, welcome to H&R Block's TaxCut Online Chat Support in North America! How can we assist you today? Jeff Gerke: Did you read my problem? Amber C.: Yes, can you hold while I research? Jeff Gerke: Yes Amber C.: Have you entered everything correctly? Jeff Gerke: I certainly think so. Jeff Gerke: The totals I told you were correct. Jeff Gerke: At least the estimated taxes totals were. I don't know if the 9,000 TC told me I owed Page | 10 was correct. Amber C.: Did you enter that you have already paid 9457? Jeff Gerke: Yes, and that shows up fine on the summary. Jeff Gerke: From almost the outset TC has been telling me I owe $12,000+ for taxes Jeff Gerke: So when I told it I'd paid $9,457, I guess the resulting $2,000+ makes sense. Jeff Gerke: But where did the $12,000 come from and why did it tell me I owed $9,000, not $12,000? Amber C.: Have you gone back and looked over all of your wages that were entered? Jeff Gerke: No, but I reviewed them after I'd entered them. Jeff Gerke: I've reviewed them now, and they look right Amber C.: Are you working with your return now? Jeff Gerke: Yes Amber C.: The amount the program is saying that you owe is based on the information you enter.Jeff Gerke: k, so...? Amber C.: Have you looked at your total taxable income, that would be where it would calculate the amount you owe, and it would include the payments that you already paid Jeff Gerke: Would that be on my income summary page? Amber C.: Yes Jeff Gerke: I'm looking at it. It looks right. Amber C.: If you would like you can have a professional review your return to see if it is accurate, but there is an extra charge for it Jeff Gerke: How much is the charge? Jeff Gerke: Is it possible that a Schedule C business showing only expenses and no income could be messing things up? Amber C.: I am not sure Jeff Gerke: Here's my dilemma: My total income on the income summary screen is just over $66,000. Jeff Gerke: The tax rate for me is 15.3%. Amber C.: Let me double check the charge Jeff Gerke: 66,000 times .153 is $10,098. That's over the $9457 I've paid, but not by $2,000+. Jeff Gerke: If I made $66,000 and I owe $12,000 in taxes, then I'm being taxed at a rate of 18.18%. Jeff Gerke: If anything, I ought to owe in the neighborhood of $700, not $2,173. Amber C.: One moment please Jeff Gerke: k Amber C.: We apologize for the inconvenience, however, the error in your return requires us to escalate your case to a higher level of customer service. Our development team is currently working on a resolution and will provide you with a status update within 2 business days via email or phone. Which method of contact do you prefer? Jeff Gerke: Phone would be preferred (if there's a live human on the other end). E-mail, otherwise. Jeff Gerke: Thank you for your help, Amber. Amber C.: There will be a live human Jeff Gerke: I hate talking with those dead humans... Amber C.: May I have your phone number and the best time to contact you Jeff Gerke: 719-266-8874. Business hours are fine. Mornings are best. I'm in Mountain Time Page | 11 (Colorado). Amber C.: I prefer lives ones too Jeff Gerke: ;-) Amber C.: Is there anything else we can assist you with today? Jeff Gerke: No, but I do appreciate the chat function. That's nice. Better than waiting on hold. Amber C.: Thank you for contacting TaxCut Online Support, Jeff, and we look forward to serving you in the future! Jeff Gerke: Thanks again for your help. Amber C.: You have a great day! Shortly afterward, I received this message via e-mail:02/29/2008 13:05:25Dear Jeff Gerke:Thank you for contacting H&R Block Customer Support.Below is the case number from your chat session:Case CHAT 7921802Please keep your case number close by--you will need it if you contact us for additional customer support.If you have any further question, click here <https://taxes.hrblock.com/hrblock/login/LoginRegistration.hrbx? ShowReg=0&TaxType=OTP&siteId> to log back into the program and use Help Center or chat.Sincerely, H&R Block Customer SupportTotal Income for 2007: $66,063 Total Federal Tax I owe: $4,614That is this % of the total: 6.9842 Page | 12 So why, when I thought I was mailing off 15% to the IRS (plus 5% more to state), did I end up paying too little? If I owed only 7% but paid 15%, how did I underpay?No, no, wait. I’ve got it wrong. I owed $4,614 for…something…but I owed an additional $9,016 in self-employment tax. I paid $9,457 in self-employment tax (which is 14.3% of my total income), and yet I supposedly owe $4,616 above that amount? Why? Why do I owe taxes on top of my self-employment taxes?There are apparently two things going on. In the first part, the program is figuring my tax based on my taxable income. It has determined that total to be $35,989, which is: $66,063 minus $5,774 (which includes downward adjustments for self-employed health insurance and half the self-employment tax I owe) o Leaving me at $60,289 (line 37)  Also subtract $10,700 for my standard deduction o Leaving me at $49,589 (line 41)  Then subtract $13,600 for personal exemptions (this is $3,400*4—where 4 is my number of exemptions) o Leaving me at $35,989 (line 43)My “tax” (line 44) is then figured from this amount. If I’m reading this right, I’m getting double taxed. I’m taxed once for my income. Based on all those adjustments, I owe $4,616. That’s cool, since I thought I owed lots more than that. Like $9,000+. But then I’m taxed again on my self-employment income—which is, incidentally, all my income. How can they do that? How can they tax me on my income and then tax me on my income? Okay, I’ve spoken with the TaxCut people and the IRS, and I’ve figured it out. I am being taxed twice, in a sense. I’m taxed once for Social Security and Medicare (that’s the self-employment tax I’ve been paying) and then I’m taxed on my income. I’ve been paying the one but not the other. Oopth.My total tax on my total income (which was $66,063, which does count Robin’s income) is $11,630. That’s after deductions and credits and exceptions and the lot.That’s 17.6%. The IRS guy said not to use a percentage because things change and aren’t fluid and some portions aren’t taxed or are taxed at different rates (he said to use the estimated tax worksheet to figure out what to pay), but this sounds easier to me.For the last few quarters I had been withholding 20% of every paycheck in order to pay both federal and state (what I thought was) income tax. This year (2008) I’ve been withholding 25%, which might be a better deal. If state tax is still 4.65% then I really Page | 13 need to be sending off 22.25% every quarter. Let’s just hope the state tax doesn’t go up, too.UpdateI ended up figuring 18.5% for federal every quarter and 2.5% for state.First Quarter 2008I made roughly $18,500 this quarter, so I’m paying $3,422.50 to the IRS and $462.50 to Colorado. I’ll probably round up. That’s 18.5% to federal and 2.5% to state.So here’s what I did. I sent a check for $3,423 to the IRS and another check for $463 to the Colorado Department of Revenue. These went out in the mail on 3/31/08.Going forward, I should mail 18.5% to federal and 2.5% to state.Q2 2008 On Saturday, June 14, 2008, I realized that it was June 15, not July 15, upon which Q2 estimated taxes were due. Gah! Why do you get only two months this quarter? You go from January 15 to April 14, which is three months, then only two months (May–June) for the next quarter, then it’s three months to the next payment, then four months to the April one again. Why not simply every 90 days? Whatever.The good news is I have the money and hopefully can get to the bank for a check before they close for the day (Saturday).[Goes off to do figuring…]Okay, I show I made $7,075.44 from freelancing and $1,804.98 from LearningRx and sundry things this quarter. That includes the two things I forgot to pay taxes on last time (Dr. Gibson’s first payment and the first payment for the new work I did for the John Bolin book). That comes to a total of $8,880.42 taxable income. According to the 21% total, that works out to $1,1864.89 total tax owed. If most of that (18.5 of those 21 percentile points) goes to the IRS, then I owe the IRS $1,642.88 ($1,643, rounded up). And if the remaining 2.5 percentile points go to Colorado, I owe Colorado $222.01 ($222).Happily, I’ve withheld more than that in my savings account. It hasn’t accrued any interest yet, but at least I’m not sitting on the floor counting $100 bills again (not that that wasn’t fun!). Page | 14 I always forget the extra fee I have to pay. This time when I went to the bank (on 6/14/08) I got one money order for Colorado and had to pay an additional $3 plus one cashier’s check for the IRS and had to pay an additional $5. That ought to figure in somewhere…Anyway, I’m paid!Q3 2008I’m seriously bummed this time (9/8/08). I thought I’d done so well this quarter, but I still withheld too little.It was complicated this time. I had a bunch of checks in savings from last quarter, so they don’t show up anywhere as deposits during this quarter. They show up on the register only when I’ve done the job and I transfer the correct (I thought) percentage over to checking. Then I get deposits showing up in savings whenever I deposit a check and either do the split or transfer money over before or after.It turns out I made $13,116.63 this quarter, which is nice, I guess—except when you haven’t withheld enough taxes to cover it. With an income of that much, I owe a total of $2,754.49 in taxes. [That’s $2,426.58 to the IRS and $327.92 to Colorado (actually, that works out to $2,754.50, doesn’t it? whatever).]Unfortunately, I have only $2,642.18 in savings. That’s $112.31 too little. Somewhere I miscalculated. Or maybe several somewheres. In the Wonky Transfers spreadsheet (in which I was transferring a percentage of those savings checks to checking when the job was done) I was even saving 22%, hoping to be sure I had enough when it came time to pay 21% to taxes. And still I was too short. How?Somehow I miscalculated or didn’t make a deposit for something, though I thought I was so diligent!Maybe “how” doesn’t matter. Maybe all that matters is that I’ve got to come up with an extra $113—and hopefully not have to close out the savings account or leave the total so low as to incur monthly fees. I guess I’ll have to transfer the money from the Marcher Lord Press account. Here on the virtual eve of Launch Day I have $1,465.66 in that account. I’ll need most of it for launch expenses (not to mention mailing off prizes) but I’ve already taken $2,000 from the adoption savings account and can’t see myself asking to do that again. I could take it from checking, but we’re at $740 for the month and haven’t paid bills. [heavy, burdened, worried sigh]Page | 15 Next time maybe I have to put aside 25% of every deposit. Maybe then I’ll have 21% come tax time. I wonder if some of this is carry-over from last time. I noted that I had some things I needed to pay in the previous quarter that I’d forgotten to pay in the quarter before that. And now, if I clean out the account, I’ll be eating the $21 I’d saved from Nathan Williams’ proposal review and the $19 I’d saved from the $92 ClickBank payout. I need to be sure I keep $40 in the savings account. (Which means I need to grab only $2,602.18 from savings (to leave $40 in there) and then the additional $152.31 (not $113) from somewhere else.)But this makes me wonder if my shortfall this time came because I had to pay out for things not paid out the time before. In other words, maybe I perfectly withheld enough this time but, because I had to borrow some from this time to pay for last time, it looks like I didn’t withhold enough.Yeah, let’s go with that theory!There’s also the fees for the cashier’s checks, etc. Gah.Rounding up, I owe $2,427 to the IRS and $328 to Colorado, for a total of $2,755—plus cashier’s check fees.So $2,602 of that can come from savings. Leaving $153 (plus fees, so more like $165) to come from somewhere else.All right, I’ve just come back from the bank. I have in my hot little hands an “official check” from the bank in the amount of $2,427 written to UNITED STATES TREASURY. That check cost me $5. I also have a money order in the amount of $328 that I will fill out for Colorado. That check cost me $3.I found out I had to leave $100 in the savings account to avoid monthly penalty fees, so that’s what I did. I took $2,542 from that account, leaving $100.18. That covers the $40 in there for this new quarter already, as well. With the $8 in fees, I owed a total of $2,763. with $2,542 taken from general savings, it left me needing to pull $221 from somewhere else. I ended up taking it from the adoption (Bring Sophie Home) account. Waa.They both went out in the mail on September 8, 2008.Q4 2008Page | 16 This time I did better in my withholding, even considering that I launched Marcher Lord Press this quarter and had to transfer lots of money around here and there between accounts.I show these amounts for what I made and owe.Item Profit Sales Tax Federal State Total Editing and Writing Taxes Owed $17,526.90 $0.00 $3,242.48 $438.17 $3,680.65 Non-Standard Thingies $516.57 $0.00 $95.57 $12.91 $108.48 Marcher Lord Press $2,418.37 $20.38 $447.40 $60.46 $528.24Grand Totals $20,461.84 $20.38 $3,785.45 $511.54 $4,317.37Depending on whether you ask PayPal, American National Bank, or my own records, I may’ve made slightly more through Marcher Lord Press. My highest amount (bank records) was $2,470.13, but there is wonkiness there because of those transfers I mentioned earlier. Some amounts coming in were repayments for things that had to go out to save other accounts. The three amounts I got were:Source Amount American National Bank $2,470.16 PayPal $2,418.37 My Own Records $2,171.96 Average $2,353.49I chose to go with one of the higher numbers, and certainly one higher than the average, for figuring what I owe. But I could go a bit higher since I saved better this time.If I wanted to pay taxes on the highest amount ($2,470.16) I would owe a total of $518.73. The IRS would get $456.97 of it and Colorado would get $61.75.Also, keep in mind that I collected $20.38 in sales tax that is also due to Colorado.I should pay the higher amount simply because I can.I have $5,500 in savings. Of that, $1,000 is for Lisa Lyons’ project I’ve not yet done, leaving me with $4,500 for taxes. If my total tax is less than that (which it is, even at the higher amounts), I’m golden.My new totals, then, would be:Item Profit Sales Tax Federal State Total Editing and Writing Taxes Owed $17,526.90 $0.00 $3,242.48 $438.17 $3,680.65 Non-Standard Thingies $516.57 $0.00 $95.57 $12.91 $108.48 Marcher Lord Press $2,470.16 $20.38 $456.97 $61.75 $539.10Grand Totals $20,513.63 $20.38 $3,795.03 $512.85 $4,328.26On 1/5/09 I got these official checks from the bank:Page | 17 $3,759 to the United States Treasury $513 to the Colorado Department of Revenue I still need to mail these out and to figure out how to pay sales tax to the various agencies it’s owed to. Okay, on that subject… I pay state and county sales tax to the State of Colorado with form DR-0100, which I can get at www.taxcolorado.com. The Colorado Department of Revenue phone number is 303-238-7378. I pay city sales tax to the city of Colorado Springs through the form they’ve sent me. The Colorado Springs sales tax office number is 385-5903.For the year 2008 I found I had way overpaid in estimated taxes. The main thing I hadn’t taken into account was the “loss” I suffered in Marcher Lord Press expenses. I made like $6,700 but had expenses of over $14,000, resulting in a ~$6,500 deficit. That greatly reduced my taxes. I had paid estimated taxes based on profits only and I hadn’t taken into account non PayPal expenses like paying Kirk and Debbie Moss and other publishing expenses.The discrepancy was so high (TurboTax showed I was due a $4,265 refund from the IRS and a $500 refund from Colorado) that it said I had a high risk of being audited. So I purchased the audit protection thing from TurboTax (for $39.99).See the “2008 Total Taxes Due” spreadsheet and related files for more detail.I e-filed both returns on 2/21/09.Q1 2009In 2009 things are going to be different. Thanks to the almighty Adoption Tax Credit.As the lady at the IRS explained it to me, the credit is subtracted from what tax I owe. Last year I owed just over $7,000 in taxes to the IRS. If I’d qualified for the adoption tax credit then, I would’ve owed zero. None. Nada. It would’ve been $7,000 minus $10,000, which results in -$3,000. They wouldn’t give me a $3,000 refund; they’d just allow me to subtract $3,000 from what I owed in tax the following year. Yikies!Colorado has no adoption credit, though, so I have to pay them like normal.In Q1 2009 I made $14,300 between freelancing, MLP, and other income. I had expenses (not forgetting those this time!) of $2,268, bringing my actual taxable income for Q1 to $12,034. Page | 18 Ordinarily, the IRS would be owed $2,227 (12034*.185=$2,226.29) and Colorado would be owed $301 (12034*.025=$300.85).Howsomever, if I’m going to get a $10,000 adoption credit from the IRS (actually, I think the amount is $11,650 because this is a special needs adoption), then I’m probably going to owe the IRS zero at the end of the year.So why send them any estimated taxes?Why send off $2,227 to Uncle Sam—plus a similar amount in the other three quarters of the year—only to receive a total refund at the end of the year? Wouldn’t it be better to not send it? To use it to pay bills and such? So that’s what I’m intending to do. No tax sent to the IRS for Q1 2009.I will go ahead and send ~$300 to Colorado, since they’re still owed what they’re owed.But no $2.2K off to the IRS. Halleluiah! Q2 2009I sure hope this adoption credit thing really works, because once again I’m not paying anything to the IRS. I would’ve owed $1,343 total taxes this time around ($160 to Colorado, the rest to the IRS). Instead, I sent off only the $160 to Colorado.Sent it via money order on 6/1/09.This is a MLP note and I’ve mentioned it there, but don’t really have an official tax Word file there, so I’m saying it here too.On July 20, 2009 I owed Colorado Springs Sales Tax. However, since all but one of my sales that quarter happened out of the city, I made only $22 in the city, meaning that I owed all of 56 cents to the city. Geri (female) at the Colorado Springs Sales Tax office told me that for amounts under $5 they don’t really care. She told me to file the form with the correct numbers but send no check. This is what I did on 7/6/09.Page | 19 Then in August I got a note from Colorado state saying I (MLP) owed them a sales tax filing for CO and El Paso County, even if it was a zero. I did the form and realized I owed them $38 (including late fees), so I sent that off on 8/28/09.Q3 2009I think I owe taxes September 15, even though that’s just 2 months after I paid my last estimated payment. So I guess this is just for what I’ve earned in July and August.For MLP, my tax liability during those months was -$65.66 total. My expenses were greater than my profits in that period. Sales tax during that time comes to -$10.59.For my freelancing, during July and August I made $13,824.44 total, with zero expenses. That puts my total tax liability at $2,903.15. Of that, $2,557.53 would normally go to the IRS and $345.62 would go to Colorado.However, we’re still adding up the adoption credit $10,000 for federal.In 2009 Q1 I would’ve owed $2,227 to IRS, but didn’t send it. In 2009 Q2 I would’ve owed $1,183 to IRS, but didn’t send it. In 2009 Q3 I would’ve owed $2,558 to IRS, but won’t be sending it.So far, I’ve used up $5,968 of the $10,000 adoption tax credit. I sure hope this works!So all I owe, if this is correct, is $346 to Colorado.Oh, but wait. For MLP I owe CO -$66, so maybe I should send just $280?On 9/8/09 I got a money order for $280 and mailed it off to Colorado DoR.Q4 2009On January 5, 2010 I started thinking about taxes owed for Q4 2009. I seriously hope the adoption tax credit works as we’re hoping it will work…In my freelance work I made $12,414.54 in net income, minus $205 in expenses (which is too low because I don’t keep track of my expenses very well: business supplies, postage, depreciation, gas, Internet, etc.), leaving me with a taxable income of $12,209.54. Normally, then, I would owe $2,257.77 to the IRS and $305.24 to Colorado.Page | 20 And for Marcher Lord Press, my handy-dandy tax page tells me I would normally owe $354.28 to the IRS for this quarter and $47.88 to Colorado. That’s because I had $1,915.01 in profits after expenses (so the handy-dandy page tells me).  In 2009 Q1 I would’ve owed $2,227 to IRS, but didn’t send it.  In 2009 Q2 I would’ve owed $1,183 to IRS, but didn’t send it.  In 2009 Q3 I would’ve owed $2,558 to IRS, but won’t be sending it.  And now in Q4 2009 I would’ve owed $2,612.05 to the IRS, but won’t be sending it.That means I’ve now used a total of $8,580.05 of the $10,000 tax credit, leaving $1,419.95. I’ve sent a note to CCAI (on 1/5/09) asking if there is an additional amount of tax credit for families that adopt a special needs child, as we did. I thought there was an additional $1,000–$1,500 for that. On 1/6 the first person said she didn’t know about that but was forwarding my note to those who would know.Update: Barb Kiryluk ([email protected]) says:The IRS tax credit is now $11,650, according to the IRS form. However, I do not believe that there is any additional tax credit for adopting a special needs child. Some states offer an adoption subsidy (CO does not) for waiting child, so you may be referring to that. The following is the link to the IRS tax topic that addresses the tax credit. http://www.irs.gov/taxtopics/tc607.html For state, this quarter I owe $305.24 for freelance and $47.88 for MLP, for a total of $353.12.For sales tax to the state of Colorado, it appears I owe $6.00. Paid with check 1034 on 1/6/10.And for sales tax to Colorado Springs, I owe $1.92. Paid with check 1035 on 1/6/10.Question: do taxes paid count as expenses?On 1/6/09 I obtained a money order for $354 to the Colorado Department of Revenue. Dropped it in the mail on 1/7/10.Year-End 2009—April 12, 2010It seems I’m up a creek. The person at the IRS who told me that I would owe zero taxes because of the adoption tax credit was wrong. I still owed Social Security payments (known as SE or self-employment tax). Page | 21 For that, I owed $6,518.The “making work pay” one-time tax credit of $800 went into reducing this, as did the $380 earned income credit (EIC). Further, I had $3,000 in reductions in the form of “additional child tax credits,” leaving me with a total SE tax liability of $2,394.That translates to $199.50/month I should’ve been paying for Social Security—or $595.50 per quarter. But I’d taken the advice of the person at the IRS and as a result, paid nothing. Now I owe $2,394 (plus the $595.50 for the first quarter of 2010) and there’s nothing anyone can do about it. Mr. Bachman of the IRS on 4/12/10 said that I might be able to qualify for an “offer in compromise (see this page), but he wasn’t sure. He said I should wait to set up a payment plan or try to get an offer in compromise (Forms 656 for the OIC and 843 to abate penalties) until I get a bill from the IRS saying I owe.He said I should go ahead and file by the due date and send in as much as I can, then wait for the bill from the IRS before trying to figure out what to do. He said it would probably come in May. He said the interest is 4%, various setup fees, and is compounded daily so I should send in as much as I possibly can.Q1 2010According to my spreadsheet, I owe $2,820.55 in total taxes this quarter for freelance work. That’s $2,484.77 for federal and $335.78 for state. Praise God for the adoption credit!That’s for a freelance editing, writing, and typesetting income of $14,248.19 and expenses of $817 (mainly for the new computer).For Marcher Lord Press, my taxable income over that quarter was $714.55Taxable income: $13,431.19 for freelance  $714.55 for MLP  Total: $14,145.74If the tax rate is 18.5% to federal and 2.5% to state, then I owe:$2,616.96 to the IRS and $353.64 to Colorado Page | 22 I’m thinking I’ve still got a lot left over on the adoption credit for federal, so I’m not going to pay anything to the IRS this time. But I do owe $354 to the great state of Colorado.That’s what I need to pay.This just in: because of the debacle of the non-payment of Social Security/Self- Employment tax during 2009, I now know I must pay $600 ($595.50) a quarter for that even if I’m going to owe nothing for regular taxes at the end of the year.So I owe the great state of Colorado $354, but I owe the IRS $600 for SE/SS. A total of $954. Wonderful.Looking at the bank accounts:I need to keep $1,300 in regular savings because I have a $600 payment there and a $675 payment there from jobs I haven’t done yet.So from savings I can draw: $582I need to keep $200 in the Adoption savings account to stay above the $100 minimum and have room to pay for a few expenses as they might arise.So from adoption I can draw: $467 (subtotal: $1,049)In the Marcher Lord Press account I need to keep $550 for new royalties owed to Jill et al, plus another $1,000 to cover expenditures like purchase orders, book table sales, and site sales that have to be filled before payment arrives, plus maybe ~$800 to pay for one cover by Kirk. (So that’s a keep-in total of $1,550.)So from the MLP account I could draw a maximum of: $1,451 (subtotal: $2,500).I owe:  $2,394 to the IRS for self-employment (social security) tax for 2009  $354 to Colorado for Q1 2010  $595.50 to the IRS for self-employment (social security) tax for Q1 2010  For a total of: $3,343.50Proposal: What if I paid the full amount due for Q1 2010 ($954)?  That would leave me with $2,389.50 taxes due and $1,546 of my funds left  Then I could pay $1,500 to IRS of the $2,389.50 I owe. Page | 23  That would leave $889.50 in owed taxes, which I could contest with the IRS.  The $400 refund I get from Colorado could go toward that $889.50 if the IRS isn’t willing to compromise.  That would leave me with $449.50 I’d still owe.I’ve elected to apply my $408 state refund toward my 2010 estimated taxes. So I was going to owe $354 to Colorado for Q1 2010, but now I won’t owe any. And for Q2, I’ll owe $54 less than I would normally.That means I don’t have that $400 refund to apply to the $889.50 I would still owe the IRS. I’ll have to just hold onto it and not spend it [cough]. Maybe I’ll leave that extra amount in the MLP account. I could leave it in the adoption savings account, but I probably need more liquidity in the MLP account. Except liquidity is what I don’t want for that money. Maybe the adoption account is best. I can always transfer it to the MLP account in a pinch.So I’ve decided:  to pay $1,500 of the owed $2,376 to the IRS and try to settle the rest in May through an Offer in Compromise (and a Form 843 to abate penalties)  to apply my $408 Colorado refund to my 2010 estimated taxes, which means I don’t owe any state tax for Q1 2010  to send $600 to the United States Treasury for Q1 estimated taxes on self- employment (SE) tax, which is really Social Security tax.On 4/13/10 two checks went out in the mail, one to the IRS for $1,500 for 2009 taxes and the other to the IRS for $600 for Q1 2010 estimated taxes (just for self-employment/SS tax).***On 6/1/10 I spoke with Ms. O’Keefe (#0246912) about the letter I received on 5/28/10 from the IRS pointing out that I had underpaid. I spoke to her about the Offer in Compromise, but she told me they would most likely deny it, since that’s mainly for people who owe a lot of money. In the thousands. So I ditched that idea.Instead, I guess I’ll just try to pay off the $888.34 I owe (well, it will go up with additional penalties and interest) within 4 months on the extension—a letter about which Ms. O’Keefe is putting in the mail for me. I asked her if I had any room for grievance at all because I’d been given wrong information by the IRS and she said no, that it would be the IRS’s word against mine, and I wasn’t going to win that one (unless I had the wrong information in writing). Page | 24 Anyway, she’s mailing me the letter with the extension. We’ll try to get it paid—while paying quarterly taxes due in 2 weeks and everything else.***Q2 2010I got my letter from the IRS with them “accepting my offer” to pay the full amount by October something. Gee, thanks for accepting. I was so hopeful…The full amount I owe now, with fees and interest, is $916.60. I’d like to pay half now if I can, but we’ll see.For Colorado, I’ll owe $54 less than I would’ve, since that’s how much was left over from my refund when I applied it to the Q1 estimated payment. I’m not even going to figure what I owe for IRS this quarter since it will be negligible and will certainly be under the ~$11,000 total I’m allowed. The only big number is the $600 I’ll owe for self-employment tax. So I owe: $600 for SE tax  Something minus $54 for State tax  $458.30 (if I can pay half) for last year’s taxMore refined numbers to come…Actually the $600/quarter is too low. That included a one-time “making work pay” tax credit of $800 for 2009. It also included $380 for an EIC (earned income credit), which I’ll probably get again. There was also $3,000 in “additional child tax credits,” which I should get again. So instead of ~$2,400 for self-employment tax for the year I will actually owe $3,200 for the year. That equates to $800/quarter. I paid $600 for Q1 2010 because it was all I could afford. But that means I owe $2,600 for the rest of the year, which comes out to $867/quarter for the rest of the year. Ack.Okay, I’ve done some figuring. Because of the $1,500 I had to send to the IRS (which didn’t cover all of the SE tax I’d underpaid, but which all came out of the MLP account), I actually had $2,093.19 more expenses than profits in Q2 ($593.19 if you don’t count the $1,500 for IRS). So I’m not going to worry about what I owe from MLP this quarter. And, frankly, I will subtract ~$500 from what I owe total.According to my figuring on the freelance side, I owe very little in tax for Q2—possibly owing to the fact that I made next to nothing and if Cecil hadn’t given his grant, we would be in dire straits right now. So anyway, I show we would owe $230.77 to the IRS and a whopping $31.19 to state. Because the adoption tax credit will wipe out most of Page | 25 that and because of the loss I mentioned in the previous paragraph, I’m not paying anything (of this) to the IRS. I guess I’ll pay ~$30 to Colorado just to keep the recordkeeping looking uniform. No, I won’t—since I had a $54 carry-over from last quarter.So now my taxes look more like this:  $867+ for quarterly self-employment tax  $0 to state (and still have ~20 carry over for Q3)  $458.30 (if I can pay half) for last year’s taxNow for the painful part: looking at the bank account. Oh, Lord…please.Okay, we’re okay. Whew! Thank You, Jesus!We have $2,248.25 sitting in the checking account, $3,331.91 in general savings, $180 in adoption, and $2,069.99 in the MLP account.Of that amount in the general savings account, $1,534.84 of it is for a job I haven’t done yet and $975 of it is for a job I have done but haven’t transferred over to checking yet (it’s payment 3 of 4 from Sally Slevin that I haven’t transferred because I wasn’t sure when it should be triggered).So I’ve got roughly $1,800 ($1,797.07) to use for taxes—if there’s nothing else in savings that can’t be used for this purpose and if I don’t pull anything from MLP. The full amount I need to pay the IRS is $1,783.60. That’s paying $867 for SE this quarter and the full amount owed from last year. By the grace of God I could pay it all off at once.But do I want to? (Robin says yes, pay it all off. No surprise!)So that’s what I did. I sent $867 off to the IRS in Cincinnati for Q2 2010 estimated tax (self-employment tax, really) payment and $916.60 off to the IRS in Ogden, Utah, to pay off what we owed from last year. I sure hope I get some of this Social Security when I’m old enough…***I found out that sales tax for both the city of Colorado Springs and the state of Colorado (and county of El Paso and “RTA”) are due on 20th of these months: April 20  July 20 Page | 26  October 20  January 20***6/14/10I sent a check for all of 69 cents to Colorado for sales tax in Q1 2010 (plus late fee). I suspect I may have to do it again because I didn’t use their nifty form. Waa.***Q3 2010I’m guessing that I should just pay $867 to the IRS again for self-employment tax, assuming that the ~$11,000 adoption credit is still covering us. But I can’t forget to pay Colorado, because that is not covered by any adoption credit.If I’m doing all this right (and that’s always a big IF), it looks like I would owe the IRS $1,057.80 for income tax and then $867 for self-employment tax, but the former number is absorbed by the adoption credit, leaving a payment of only $867 to the IRS.For state, I owe $142.95.So I got an official check to the Department of the Treasury for $867 and a money order to Colorado for $143 (on 9/14/10).But after I did this, I realized I had figured only MLP taxes and not what I owed for personal. I won’t affect the federal taxes but will affect Colorado. I owe another $309 to state!So I went back and got another money order, this time for an additional $309 (9/14/10).So a total of $452 sent to Colorado.***Q4 2010According to my increasingly anguished tax figuring, I would (without the adoption tax credit) owe the following for this quarter:Marcher Lord Press: $1,162.21 (federal) and $29.06 (state) Freelancing: $2,126.54 (federal) and $287.37 (state)Page | 27 For a total of: $3,288.75 (federal) and $316.43 (state)However, since I (believe I) am still under the effect of the adoption credit for this final year (probably), what I actually owe is $867 to federal and the full $316.43 to state. For a grand total of $1,183.43.Happily, I had set aside $3,111.95 in the taxes savings account, so I’m covered. Praise God! This will also help me because I under-saved in the MLP Royalties account.I do need to leave $725 in the Tax account (for the transfers made already in 2011, plus the $100 minimum to keep the account free of fees), and $475 in the MLP Royalties account for the same reason ($375 for royalties in 2011 and $100 to avoid fees).On 1/12/11 I got money orders for the IRS and the Colorado payments. I had to get three money orders (at 20 cents each) because the cutoff amount was $500. On I put them in envelopes, both with ES vouchers, and dropped them in the mail on 1/12/11, though the mail had already come for the day.For Colorado Springs Sales Tax, I owed $0.00, but I mailed/filed the form anyway, on 1/13/11.And for Colorado State Sales Tax, I owed $5 to state and $0 to El Paso County and “Transportation.” I filed the form and the payment (on check #1136) on 1/13/11.***2010 Annual TaxesTurboTax says I’m getting a $9,146.00 refund from federal and like a $398 refund from state. The big federal refund is from the adoption tax credit, which is now “refundable.” This should pretty much clean me out of it, though. It’s back to full taxes from now on.I should probably estimate 25% (or 23%) instead of the 22% I’ve been doing, because last year I would’ve owed almost $1,000 in taxes if it hadn’t have been for the adoption tax credit refund.My stats (federal):AGI: $46,147 Taxable: $16,497 Tax due: $6,829 Credits/pymt: $15,975 Difference: $9,146Page | 28 I e-filed the Colorado tax return, but the IRS couldn’t be e-filed b/c of the documentation I had to send for the adoption credit.That documentation consisted of 4 pieces: a document showing that the China adoption was final, included seal but no names  Sophie’s Chinese passport, showing her Chinese name  A CCAI document showing her Chinese and American names  A U.S. citizenship document showing her American name***According to notes from the Q3 2006 section of this document, I owe 15% to the federal government and 4.65% to Colorado, for a total of 19.65%. Wonder where I got the 22%? Maybe that is to account for the extra $800/quarter for self-employment tax. But where did I get that number?In Q1 2008 I said it was better to send 18.5% to federal and 2.5% to state, for a total of 21%. But in 2008 I ended up overpaying estimated taxes and getting a ~$4,000 refund.In 2009, I owed $6,518 in self-employment tax. But that was reduced by the “making work pay” tax credit, the earned income credit, and “additional child tax credits.” That left me with a total self-employment tax liability of $2,394, or roughly $600/quarter that I should’ve paid.Later, I figured that my true self-employment tax liability going forward would be $3,200 for the year, or $800/quarter. That assumes I wouldn’t get the “making work pay” credit again.But isn’t the self-employment tax counted in the overall tax payments I’ve been making? Maybe it shouldn’t be the amount plus $800/quarter, but just the amount (and the $800 is included)…?Looking at Colorado: what I owed in taxes for 2010 was $762, but I paid $1,176. I should’ve paid $190.50/quarter instead of $294. That’s more than a $100 difference. More significantly, it’s a 35% overpayment.I’m getting a ~400 refund from Colorado for 2010. In 2006, I got a $290 refund. In 2007, I got a $500 refund. In 2008, I got a $408 refund (which I applied forward to estimated taxes in 2009). I don’t see the 2009 money, but I think it’s in there. Anyway, the point is that I’ve overpaid Colorado every year. This year I should take my own advice and pay 2.5% to Colorado, not the 4.9% I’d been figuring. That would be nearly a 50% decrease, which I could use for federal, where I’m constantly underpaying. Page | 29 For Q1 2011 my numbers were: Freelance Income Total: $27,023.68 (mainly the $10K from Zondervan) MLP Income Total: $8,198.99Freelance Expenses Total: $180 ($105 for ConstantContact and $75 for ink cartridges) MLP Expenses Total: $10,096.49Income Total: $35,222.67 Expenses Total: $10,276.49So my taxable income was $25,046.18.If the correct tax percentage total is 22%, then I owe $5,510.16 (for both federal and state).If we’re going to 2.5% to state, I would owe $626.16 to Colorado. Normally I would be sending $1,227.26, so sending half that is scary. Maybe I should send 3% just to be safe. That would be $751.39.And if I would then send the remaining 19% to the IRS, my total there would be $4,758.77.Happily, I’d set aside $6,084.57 in the Taxes account (though some of that is from Q2 2011 jobs). If I pay the proposed amount, I would still have $574.41 in that account for Q2 (a little less, actually, b/c of the fees for the official checks).I think that’s what I’ll do.(See also the Word file called “2011-Q1—Figuring Taxes and Royalties.doc” in the MLP folder. I did more figuring there.)On 4/12/11 I got and mailed off two checks. One to the US Treasury for $4,759, and another to the Colorado Department of Revenue for $575.(The $398 from Colorado magically appeared in our checking account on 4/15/11.)***Mindy Starnes Clark’s husband is an accountant. Here’s my royalty/tax question to him (through her), and his answer.My question: Page | 30 Okay, Mindy. Would you mind asking him a question I’m sure he’d know the answer to off the top of his head?This is about royalties and taxes for money made through Marcher Lord Press.When I receive a payment from, say, Amazon for Kindle sales for the month, I never know which I should set aside first: the tax portion or the royalty portion.For example, let’s say I received a payment of $1,000 from Amazon. Because just about all of my authors’ books have broken even and the authors are all receiving their 50% cut of profits, I would generally take $500 of that payment and set it aside to pay royalties at the end of the quarter. But then when I look at what I owe for taxes from that amount, I’m guessing I owe it from the $1,000, not just the half of that that’s left after I take out royalties, right?In other words, I should probably be taking the tax portion out first and then dividing what’s left 50/50 with my authors for royalties. Yes?But Randy Ingermanson said I should pay the authors their cut off the top and then pay taxes on what’s left, not on the whole. Yes?Thank you.JeffHis answer: U report $1000 as income then $500 as expense (u shld be issuing 1099s to the authors to support that expense) with a net taxable for u of $500.***On 4/13/11 I paid sales tax for city, county, and state. Well, I say I paid it, but since all my sales for the quarter were outside of Colorado, my sales tax due was zero to all entities.But I went ahead and mailed the forms to both places (C/S and CO/El Paso County).***Q2 2011Income was $20,180.37 ($7,850 from freelance and $12,330.37 from MLP) and expenses were $6,542.27 ($120 from freelance and $6,422.27 from MLP). Page | 31 Actually, my MLP expenses were about $1,000 higher, because I forgot to take expenses out when I calculated MLP site sales. I showed my income from that channel at $2,217.09, but I had not then extracted expenses. I realized this on the way to the bank to get the checks, so I did some readjusting. Instead of owing a total of $3,000, I calculated that I owed a total of $2,750. (I’d changed the taxable income from $13,638 to $12,500 based on this adjustment.)So I sent $2,375 to the IRS and $375 to Colorado.My only booboo was that I had the bank make out the IRS check to the IRS, not the US Treasury. I hope that will be okay.***Page | 32

Paying Estimated Taxes Again

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