Zero Taxes?

[ferco]

Hypothetical: Self-employed, No employees. Annual earned business income 22k. Business expenses = 10k ; Simple IRA max contribution =11k. After accounting for self employment tax , one personal exemption and real estate tax deduction on personal residence, taxes on the 22k should be close to zero.......is this thought process correct or am I missing something?

 

[Mysto]

I am not a tax expert ( there are some on this board and maybe they will chime in) but I used a solo401k for 2006 and didn't pay taxes - similar to your situation but with more income. You might want to look into a solo for yourself if you want to move addtional non-qualified assests into non-taxable. At 22k you could put in about 20k.

 

[ferco]

Taking into account the 10k business exp, I assume one could easily do the remaining 11k into the solo 401k and still get the zero tax status.

 

[saluki9]

Your thinking is correct, your liability would be $0

 

[tryan]

yup, zip, nadda .... AND if you had a kid you'ld GET ($1000) A REFUND!

 

[retire@40]

yup, zip, nadda .... AND if you had a kid you'ld GET ($1000) A REFUND!

How do you get a $1000 refund?

 

[SecondCor521]

Probably referring to the dependent tax credit, $1,000 per kid, which is refundable at a low enough income level. This means a person can actually receive income taxes from the feds (not just a refund of money paid in). See line 68 of this year's 1040.

2Cor521

 

[JustCurious]

You may not owe federal income tax, but you will still owe Social Security and Medicare taxes.

 

[CCdaCE]

Probably referring to the dependent tax credit, $1,000 per kid, which is refundable at a low enough income level. This means a person can actually receive income taxes from the feds (not just a refund of money paid in). See line 68 of this year's 1040.

2Cor521

So, if you have, say, 400 kids, we're talkin' some serious money here!

-CC

 

[uncledrz]

You may not owe federal income tax, but you will still owe Social Security and Medicare taxes.

But if the expenses were $22,000 then there'd be no tax whatsoever.

 

[ferco]

Would one's personal exemption and/or personal property tax deduction mitigate the fed tax/soc/medicare (ie., self employment) taxes. I would also think that in most staes, if there's no fed tax due, then no state tax would be due either.

 

[JustCurious]

Would one's personal exemption and/or personal property tax deduction mitigate the fed tax/soc/medicare (ie., self employment) taxes.

No, it would not mitigate the social security and medicare taxes.

 

[ScaredtoQuit]

But don't forget the $1,540 that you would owe for FICA!