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This reminds me of my experience freelancing in 2009. In my effort to try to figure out how to claim my income, aka "do the right thing", I submitted a 1099-MI

This reminds me of my experience freelancing in 2009. In my effort to try to figure out how to claim my income, aka "do the right thing", I submitted a 1099-MISC form, which apparently was a grave error. Since then, I've been trying to convince the IRS that I submitted the form in error, all the while with them sending me increasing bills for taxes and penalties on income I didn't actually received. I just got another letter last week. As it turns out, what I should have done was nothing. Instead of trying to figure out the proper, "by the book" procedure, I would have been much better off if I had either A) done nothing or B) just reported it as some kind of supplemental income on my 1040 or whatever. The lesson I learned is that strict rules and procedures in any system that largely involves humans can usually be ignored, at least on the first pass. If you've missed something that's actually important, they'll let you know. Otherwise, everyone's better off leaving well enough alone.

rogerbinns 15y ago
If you freelance you should never do your own taxes. There are so many federal, state and city rules that could bite you that you aren't even aware of. And if you make a mistake (which you will), you saw what happens. If I ever get elected president, I'd insist the tax code get smaller by 10% each year. If congress/senate can't figure that out then every item whose number ends in a particular digit would be automatically deleted (eg all ending in '3'). Over $12 billion is spent each year on tax preparation. That is a huge waste and there are many many better places for that to be spent.
- alanfalcon 15y ago
  Replacing income tax with a national sales tax and a prebate check seems like it would make living in the USA 13% better just by making April a less stressful month on the whole. (Yeah, I speak mostly in jest, but I'm referring to the so-called "fair tax" which I like despite not really being qualified to have an opinion about it).
  - derleth 15y ago
    > Replacing income tax with a national sales tax Not in jest: This would be terrible for the poor and middle class and wonderful for the rich, which is the only reason you've ever heard of this cockamamie scheme. The reason is that the poor and middle class need to spend a greater proportion of their income just to survive, whereas the richest can more-or-less sit on most of their money (in banks and other investments, to be sure) and still live like rich people. Taxing spending is therefore what's known as a 'regressive tax', in that it affects the poor more than the rich, as opposed to a 'progressive tax', which affects the rich more than the poor.
    - recursive 15y ago
      Your quote left out the part about the "prebate" check. That seems to be the part by which you can adjust the regressiveness. The simplicity is certainly appealing.
    - cstejerean 15y ago
      The incredibly rich already have many options available to avoid paying taxes. The concerns you raise are valid, but there might be ways to address them, perhaps by taxing different categories of items at different rates (or perhaps changing the sales tax by price). Maybe 3% sales tax on groceries, but 30% sales tax on automobiles over 50k for example.
    - deleted 15y ago
      [deleted]
    - simplefish 15y ago
      It's worth noting that the UK, France, Germany, Sweden, Australia, and almost every other western democracy finance very large chunks of their governmental expenditures via high consumption taxes. Most people agree that not only are they not hellholes with the poor and middle class starving on the streets, but they're actually nicer places to be poor than the US. So while you're right that this would be a shift to a less progressive tax system, it's also clear that this isn't the whole story. In fact, the progessivity of the tax system has very little impact on inequality. You can have a highly progressive system (like the US, which by some measures has the most progressive tax system of any first world country), or a relatively regressive system like most of Europe, and it just doesn't matter. In which case, anything to simplify the tax system in the US is probably a good idea. Further, the "rich" in your example are able to easily evade most taxes. Consumption taxes - specifically if implemented as a VAT, as in Europe - are effectively impossible to dodge, even if you're very rich. You may not pay a lot as a percentage of your total income, but you will pay. The (nominally) highly progressive system in the US is unable to guarantee that. (And in any case, as recursive pointed out, the prebate check would make the system arbitrarily progressive, undermining your entire complaint. Although personally, I'd favour just implementing a straight up European-style regressive VAT, and if you want to redistribute income, do it via welfare payments; that's what they're there for. And unlike tinkering with the tax code, they actually are capable of effecting significant redistribution. Your entire argument seems predicated on the idea that the US tax code has something to offer that the typical European tax code does not. Will all due respect, I question this. The US tax code is a disaster, and US prosperity has been achieved in spite of it, not because of it.)
- Encosia 15y ago
  As someone who receives a couple dozen 1099s from all over the country each year, you've got my vote.
kahawe 15y ago
The lesson should have been: when you know nothing about taxes, you just don't do them yourself and get professional help instead. It really doesn't cost the world and depending on where you are, you might even save a lot and they can definitely help you figure out what your options are for whatever situation you are in. Don't go cheap on those things... hardly anything is more important for a company than taxes - except maybe paying social insurance for your employees here in Europe. You don't frakk around on these things; it makes you look extremely unprofessional and can have grave consequences. Grow up.
- recursive 15y ago
  FWIW, that is also a lesson that I learned. Your tone suggests that you don't really understand my situation. It was my first time dealing with this situation and I wasn't trying to "go cheap". I thought I was doing everything correctly. I was unaware that it is standard practice to use a professional accountant in cases like that. I was actually trying to "do the right thing". I just apparently didn't know what that was, despite my best intentions. Who do I look unprofessional to? The IRS? I can live with that.
  - kahawe 15y ago
    > Who do I look unprofessional to? The IRS? I can live with that. The problem is, the IRS could quickly become suspicious out of sheer bureaucracy and start auditing you closely and then you could be in for another lesson on your obligation to preserve records, bills and book keeping etc... And at least in Europe, if you fail to pay taxes and especially insurances, they could notify your customers, no less, that whatever money those owe you has to go to them instead. At that point you are pretty much done for unless you are fortunate enough to have enough cash to quickly take care of any open debts to them. I really understand your best intentions but unfortunately the tax authorities aren't exactly in the service industry and they are extremely used to getting only exactly the right kind of input, any deviation from the standard usually ends in chaos, in the best case. And your story suggests you were STILL trying to remediate it on your own, despite them sending you bills including fees for being late... I hope this is not the case. > If you've missed something that's actually important, they'll let you know. Otherwise, everyone's better off leaving well enough alone. This is generally true, one of the nice things of being a freelancer - you only have to worry about things that actually matter. On the other hand missing certain deadlines could mean disadvantages or more bureaucracy for you, that's where the professional help comes in. Also, opening your own company/one-man-show comes with certain responsibilities and unfortunately knowing a bit about taxes or at least knowing enough to realize you typically can NOT do them yourself is one of them. So, while your approach is surely commendable trying to do the right thing, it is also somewhat naïve - that's where the tone came from, as a friendly reminder "this is serious business"! :)

rogerbinns 15y ago

If you freelance you should never do your own taxes. There are so many federal, state and city rules that could bite you that you aren't even aware of. And if you make a mistake (which you will), you saw what happens. If I ever get elected president, I'd insist the tax code get smaller by 10% each year. If congress/senate can't figure that out then every item whose number ends in a particular digit would be automatically deleted (eg all ending in '3'). Over $12 billion is spent each year on tax preparation. That is a huge waste and there are many many better places for that to be spent.

alanfalcon 15y ago
Replacing income tax with a national sales tax and a prebate check seems like it would make living in the USA 13% better just by making April a less stressful month on the whole. (Yeah, I speak mostly in jest, but I'm referring to the so-called "fair tax" which I like despite not really being qualified to have an opinion about it).
- derleth 15y ago
  > Replacing income tax with a national sales tax Not in jest: This would be terrible for the poor and middle class and wonderful for the rich, which is the only reason you've ever heard of this cockamamie scheme. The reason is that the poor and middle class need to spend a greater proportion of their income just to survive, whereas the richest can more-or-less sit on most of their money (in banks and other investments, to be sure) and still live like rich people. Taxing spending is therefore what's known as a 'regressive tax', in that it affects the poor more than the rich, as opposed to a 'progressive tax', which affects the rich more than the poor.
  - recursive 15y ago
    Your quote left out the part about the "prebate" check. That seems to be the part by which you can adjust the regressiveness. The simplicity is certainly appealing.
  - cstejerean 15y ago
    The incredibly rich already have many options available to avoid paying taxes. The concerns you raise are valid, but there might be ways to address them, perhaps by taxing different categories of items at different rates (or perhaps changing the sales tax by price). Maybe 3% sales tax on groceries, but 30% sales tax on automobiles over 50k for example.
  - deleted 15y ago
    [deleted]
  - simplefish 15y ago
    It's worth noting that the UK, France, Germany, Sweden, Australia, and almost every other western democracy finance very large chunks of their governmental expenditures via high consumption taxes. Most people agree that not only are they not hellholes with the poor and middle class starving on the streets, but they're actually nicer places to be poor than the US. So while you're right that this would be a shift to a less progressive tax system, it's also clear that this isn't the whole story. In fact, the progessivity of the tax system has very little impact on inequality. You can have a highly progressive system (like the US, which by some measures has the most progressive tax system of any first world country), or a relatively regressive system like most of Europe, and it just doesn't matter. In which case, anything to simplify the tax system in the US is probably a good idea. Further, the "rich" in your example are able to easily evade most taxes. Consumption taxes - specifically if implemented as a VAT, as in Europe - are effectively impossible to dodge, even if you're very rich. You may not pay a lot as a percentage of your total income, but you will pay. The (nominally) highly progressive system in the US is unable to guarantee that. (And in any case, as recursive pointed out, the prebate check would make the system arbitrarily progressive, undermining your entire complaint. Although personally, I'd favour just implementing a straight up European-style regressive VAT, and if you want to redistribute income, do it via welfare payments; that's what they're there for. And unlike tinkering with the tax code, they actually are capable of effecting significant redistribution. Your entire argument seems predicated on the idea that the US tax code has something to offer that the typical European tax code does not. Will all due respect, I question this. The US tax code is a disaster, and US prosperity has been achieved in spite of it, not because of it.)
Encosia 15y ago
As someone who receives a couple dozen 1099s from all over the country each year, you've got my vote.

kahawe 15y ago

The lesson should have been: when you know nothing about taxes, you just don't do them yourself and get professional help instead. It really doesn't cost the world and depending on where you are, you might even save a lot and they can definitely help you figure out what your options are for whatever situation you are in. Don't go cheap on those things... hardly anything is more important for a company than taxes - except maybe paying social insurance for your employees here in Europe. You don't frakk around on these things; it makes you look extremely unprofessional and can have grave consequences. Grow up.

recursive 15y ago
FWIW, that is also a lesson that I learned. Your tone suggests that you don't really understand my situation. It was my first time dealing with this situation and I wasn't trying to "go cheap". I thought I was doing everything correctly. I was unaware that it is standard practice to use a professional accountant in cases like that. I was actually trying to "do the right thing". I just apparently didn't know what that was, despite my best intentions. Who do I look unprofessional to? The IRS? I can live with that.
- kahawe 15y ago
  > Who do I look unprofessional to? The IRS? I can live with that. The problem is, the IRS could quickly become suspicious out of sheer bureaucracy and start auditing you closely and then you could be in for another lesson on your obligation to preserve records, bills and book keeping etc... And at least in Europe, if you fail to pay taxes and especially insurances, they could notify your customers, no less, that whatever money those owe you has to go to them instead. At that point you are pretty much done for unless you are fortunate enough to have enough cash to quickly take care of any open debts to them. I really understand your best intentions but unfortunately the tax authorities aren't exactly in the service industry and they are extremely used to getting only exactly the right kind of input, any deviation from the standard usually ends in chaos, in the best case. And your story suggests you were STILL trying to remediate it on your own, despite them sending you bills including fees for being late... I hope this is not the case. > If you've missed something that's actually important, they'll let you know. Otherwise, everyone's better off leaving well enough alone. This is generally true, one of the nice things of being a freelancer - you only have to worry about things that actually matter. On the other hand missing certain deadlines could mean disadvantages or more bureaucracy for you, that's where the professional help comes in. Also, opening your own company/one-man-show comes with certain responsibilities and unfortunately knowing a bit about taxes or at least knowing enough to realize you typically can NOT do them yourself is one of them. So, while your approach is surely commendable trying to do the right thing, it is also somewhat naïve - that's where the tone came from, as a friendly reminder "this is serious business"! :)