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Uh, I'm 100% not going to resort to ad-hominem attacks, but I don't think that, knowing that you are aware of the current state of taxes and fail to plan for th

by slpsys 17y ago

Uh, I'm 100% not going to resort to ad-hominem attacks, but I don't think that, knowing that you are aware of the current state of taxes and fail to plan for them, I don't think you'll find a person on this board who thinks you're anything but a poor planner.

DanielBMarkham 17y ago
You're a new commenter to this thread, so I will try this again. Perhaps I've been poor at explaining it. You're self employed. Let's say you sell services. It's the first week of the year. The first week you did great. Let's say you made $5,000. Woo hoo! But wait, you say, part of that money isn't really yours. So what do you pay? Do you multiply 5K by 52 weeks in the year to assume an income? That's how most people's payroll taxes are done. So let's say you do that and immediately write a check for 1800 bucks for taxes. Then you make nothing else the rest of the year. You've lost use of that money and you really needed it. Wrong answer. Let's try again. Let's say you put it in the bank. Now you make another 5K. And another and another. After a month you've made 20K. 6K of that is in the bank. Then there's no work for a month or two. At the end of the quarter, you've got 6K in the bank for taxes. Do you write the check? Well -- what's your income going to be? You haven't made anything in two months. So you don't write the check. Then the next quarter you work every week. Wrong answer. Or you write the check, and there's no more work for two months. Wrong answer. Or you write the check and need a new server. Or you don't write the check and need the money. Or you get hit with another large business expense. Or somebody goes to the hospital. The randomness goes on and on, and without knowledge of just how your income is going to work for each week for the next year you're guessing at optimization strategies. Note that some of these unplanned expenses are tax-deductible events -- these are items you would take off from your income before taxes anyway. Some, of course, are not. Allocating the money immediately doesn't work because there's no set amount to allocate without a predictable tax bill to prorate. Saving the money results in various scenarios where the savings conflict with other business realities and you've still got the prediction problem. The most reasonable strategy that I can create is to pay some kind of guess and then catch up the following year -- after all, you always know what your taxes are for the previous year. But the fact remains that the tax system is made for people with predictable income where the employer takes the money out of their checks. And as the economy gets more diversified and more and more people run their own businesses, this assumption causes more and more problems. I think calling all of that "poor planning" is a bit oversimplified.

by slpsys 17y ago

DanielBMarkham 17y ago

You're a new commenter to this thread, so I will try this again. Perhaps I've been poor at explaining it. You're self employed. Let's say you sell services. It's the first week of the year. The first week you did great. Let's say you made $5,000. Woo hoo! But wait, you say, part of that money isn't really yours. So what do you pay? Do you multiply 5K by 52 weeks in the year to assume an income? That's how most people's payroll taxes are done. So let's say you do that and immediately write a check for 1800 bucks for taxes. Then you make nothing else the rest of the year. You've lost use of that money and you really needed it. Wrong answer. Let's try again. Let's say you put it in the bank. Now you make another 5K. And another and another. After a month you've made 20K. 6K of that is in the bank. Then there's no work for a month or two. At the end of the quarter, you've got 6K in the bank for taxes. Do you write the check? Well -- what's your income going to be? You haven't made anything in two months. So you don't write the check. Then the next quarter you work every week. Wrong answer. Or you write the check, and there's no more work for two months. Wrong answer. Or you write the check and need a new server. Or you don't write the check and need the money. Or you get hit with another large business expense. Or somebody goes to the hospital. The randomness goes on and on, and without knowledge of just how your income is going to work for each week for the next year you're guessing at optimization strategies. Note that some of these unplanned expenses are tax-deductible events -- these are items you would take off from your income before taxes anyway. Some, of course, are not. Allocating the money immediately doesn't work because there's no set amount to allocate without a predictable tax bill to prorate. Saving the money results in various scenarios where the savings conflict with other business realities and you've still got the prediction problem. The most reasonable strategy that I can create is to pay some kind of guess and then catch up the following year -- after all, you always know what your taxes are for the previous year. But the fact remains that the tax system is made for people with predictable income where the employer takes the money out of their checks. And as the economy gets more diversified and more and more people run their own businesses, this assumption causes more and more problems. I think calling all of that "poor planning" is a bit oversimplified.