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Internet Marketers : What percentage in tax do you pay?, and how do you really know?

by Sonny Am
13 replies
Hi,

Basically I read earlier that in the USA paypal now have to send all transaction info to the gonvernment if the account does over $20,000 in sales, which most successfull internet marketers will do?

I wanted to know, what rate of tax internet marketers would have to pay, typically.

And im assuming this is different if you set up a company, or if you carry on operating as a sole trader?

I know this sort of info could be considered out of the domain of the warriorforum, but as it is related to people that make money online, i thought id ask....


Really looking forward to your replies.


Thank you in advance.
#internet #marketers #pay #percentage #tax
  • Profile picture of the author BloggingPro
    I pay taxes on a quarterly basis for my online income. I save 20% of my monthly revenue and put it into a separate bank account. Some argue you should pay up to 35%, but after speaking to a local tax professional I was advised I could get away with 20%.

    Even then, I am still over-paying and get a refund. This has something to do with the taxes I pay in my payroll from my "9 to 5."

    I operate as a sole proprietor and get 1099's from a variety of sources, including PayPal, Commission Junction and other affiliate networks. My first year of solid income I took all of this information (in addition to my W2's from the "9 to 5" ) to a local tax professional and they advised on how to best take care of my tax business going forward.

    Best advice? Contact a local tax professional so they can advise you on the best options for you and your business.

    BP
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    • Profile picture of the author Sonny Am
      Originally Posted by BloggingPro View Post

      I pay taxes on a quarterly basis for my online income. I save 20% of my monthly revenue and put it into a separate bank account. Some argue you should pay up to 35%, but after speaking to a local tax professional I was advised I could get away with 20%.

      Even then, I am still over-paying and get a refund. This has something to do with the taxes I pay in my payroll from my "9 to 5."

      I operate as a sole proprietor and get 1099's from a variety of sources, including PayPal, Commission Junction and other affiliate networks. My first year of solid income I took all of this information (in addition to my W2's from the "9 to 5" ) to a local tax professional and they advised on how to best take care of my tax business going forward.

      Best advice? Contact a local tax professional so they can advise you on the best options for you and your business.

      BP

      Quote

      thanks for the advice.

      Im assuming this rises the more you earn, i remember reading that it could rise as much as 40 percent if you earn more than 300,000 in profit.
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  • Profile picture of the author keyon
    Reporting both my "9-5" job and misc 1099s from my side businesses, I usually end up paying around 42% to the IRS. A lot of people forget that working for yourself means you have to pay all the social security taxes due on that money (what you owe plus what an employer would have paid). It's important to know this when you're trying to estimate what it would take to "replace" your day-job income with an internet business.
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    • Profile picture of the author Sonny Am
      Originally Posted by keyon View Post

      Reporting both my "9-5" job and misc 1099s from my side businesses, I usually end up paying around 42% to the IRS. A lot of people forget that working for yourself means you have to pay all the social security taxes due on that money (what you owe plus what an employer would have paid). It's important to know this when you're trying to estimate what it would take to "replace" your day-job income with an internet business.
      Paying 42 percent of what your profit is crazy, it makes me think, whats the point. Im sure there are ways you dont have to pay that much.
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      • Profile picture of the author keyon
        Originally Posted by Sonny Am View Post

        Paying 42 percent of what your profit is crazy, it makes me think, whats the point. Im sure there are ways you dont have to pay that much.
        Well, I don't think the percentage is not going to change much, but I suppose there are a lot of clever ways to reduce your tax liability (via adjustments to reported income), some tactics being less honest than others. I guess that's how a good accountant earns his/her money!
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  • Profile picture of the author HelpingYouBeAnExpert
    They are proposing 68% no if you end up making over 250K! Not sure if they got the law passed yet but you can count on that being true at some point.
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    • Profile picture of the author Sonny Am
      Originally Posted by HelpingYouBeAnExpert View Post

      They are proposing 68% no if you end up making over 250K! Not sure if they got the law passed yet but you can count on that being true at some point.
      .

      Wow, 68%, that wont ever be true, surely? that would leave with you literally no money of your own.
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      • Profile picture of the author JohnMcCabe
        Sonny, what the tax tables say and what people actually pay are two different things. It isn't quite as black and white as 'add up the income reports and send in a percentage'.

        There are various deductions available, and people who operate businesses have more of these opportunities than people with only regular jobs. That's where a good accountant or tax pro, one who understands businesses at the level you are at, earns their money.

        Another factor is that the US tax system is based on a tiered system. When someone says that the tax rate for those over $250k would be 68%, that does not start at dollar one. In fact, the lowest tier pays no taxes and under certain circumstances still gets money back. If you are in the next tier, you still don't pay on that first amount. You pay on the first dollar after reaching that threshold. Same for the next tier. You pay nothing on the first tier. You pay the next tier's rate until you reach the next bracket, where you pay the next rate on money above the bracket line.

        The highest rate you pay, on the last few dollars earned, is called your 'marginal tax rate'. A 68% rate would be due on earnings over $250k, after all possible credits and deductions are subtracted.

        I could say more, but I'd be crossing over from economics to politics, and that's still a big no-no around here...
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        • Profile picture of the author Sonny Am
          Originally Posted by JohnMcCabe View Post

          Sonny, what the tax tables say and what people actually pay are two different things. It isn't quite as black and white as 'add up the income reports and send in a percentage'.

          There are various deductions available, and people who operate businesses have more of these opportunities than people with only regular jobs. That's where a good accountant or tax pro, one who understands businesses at the level you are at, earns their money.

          Another factor is that the US tax system is based on a tiered system. When someone says that the tax rate for those over $250k would be 68%, that does not start at dollar one. In fact, the lowest tier pays no taxes and under certain circumstances still gets money back. If you are in the next tier, you still don't pay on that first amount. You pay on the first dollar after reaching that threshold. Same for the next tier. You pay nothing on the first tier. You pay the next tier's rate until you reach the next bracket, where you pay the next rate on money above the bracket line.

          The highest rate you pay, on the last few dollars earned, is called your 'marginal tax rate'. A 68% rate would be due on earnings over $250k, after all possible credits and deductions are subtracted.

          I could say more, but I'd be crossing over from economics to politics, and that's still a big no-no around here...
          Thank you, that was incredibly helpful. I am aware that there are deductions available, and thank you for clearing up the tiered system. Obviously, I have quite a bit more reading to do on this. I just thought that by paypal having permission to send your transaction details to the government, it would make things a little more "black and white", it seems I underestimate the power and experience of accountants.
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          • Profile picture of the author JohnMcCabe
            A businessman needed a new accountant, and he scheduled three interviews. To test their ability to think on their feet, he asked them all the same question:

            "What is 1 and 1?"

            Prospect #1: 1 and 1 is 2, obviously.

            Next...

            Prospect #2: 1 and 1 is either 2 or 11.

            Next...

            Prospect #3: What do you want it to be?

            You're hired!

            :p

            At worst, having PayPal report transactions might make it a bit tougher to "fudge" on income reporting, but that's only if you do things like under-reporting income to start with.

            The main thrust behind the reporting requirement had more to do with money laundering, drugs and anti-terrorism than a few IMers cheating on their taxes.
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            • Profile picture of the author fluffythewondercat
              Self-employed persons have IRAs available to them. They're called SEP and SIMPLE accounts. Deposits to one of these accounts will reduce your gross income and thus, your tax liability.

              I expect many marketers are in the same situation as I am, where my income is comingled with my husband's, so our tax rate isn't necessarily indicative of what you might pay as a single marketer.

              fLufF
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  • Profile picture of the author HelpingYouBeAnExpert
    If I could I would not pay income tax it's just wrong, the problem is I'm like 1 out of 100 and if I don't pay I go to jail so I pay. But I hate it, it's just wrong

    So the solution I found for a someone like my kind is just outsource it so I never look at the the thing and end up in jail. So far ti's worked pretty good
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