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Tax questions - how much to earn?

post #1 of 13
7/1/09 at 10:55am
Thread Starter 
I need some general advice re taxes. I am currently a full time student, but I work as a consultant independently and bill for hours, mostly, obviously, during the summer. I am independent and pay for school with the proceeds.

I was a professional for 3 years post undergrad, and taxes were relatively simple because I was making enough, but not too much, not to have many options/variables.

Now, as I don't expect to crack $30-$40K, I can take deductions for IRA contributions (couldn't before b/c of 401k), tuition payments, and student loan interest. Two questions:

1 - What other low-income deductions/credits are available to me?

2 - Since I have control over when I invoice (I could defer a good portion to 2010) and how much I work, are there any thresholds in the 30-40k range that I should try to stay under for 2009?

Some edits: I don't have any kids or dependents, I rent, live in MA
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post #2 of 13
7/1/09 at 2:38pm
I think a lot will depend on the actual numbers aw well as what state you are in. Do yourself a favor and sit down with a CPA, it will be worth the investment.
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post #3 of 13
7/1/09 at 2:51pm
While I have not yet hit the point of having to do real taxes, I am a firm believer in getting a good accountant.

Someone who can get the right deductions could easily save you more than the difference between the price of their services and a copy of turbotax (in addition to the piece of mind they guarantee you). Go sit with them for a little bit and your taxes are done until next year (although if you are doing your own consulting work...should you be paying quarterly?)

I've always used the free online turbotax for low income/students (parents are self employed and if I had any questions, they could bring them up with their accountant when they did taxes) and while it does the job and finds some deductions, I am not looking forward to using it for 09 taxes and beyond. Last year I had income...that is about it (as a dependant IRA contributions didnt do much. This year I will have realized capital gains, student loan interest, potential reimbursements for business expenses...etc.

Time to find an accountant.
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post #4 of 13
7/1/09 at 4:14pm
I agree that an accountant can be helpful (especially if you've got your own consulting business). But to get a general idea of taxes you would need to pay, here's an option:

http://www.paycheckcity.com/netpayca...calculator.asp

Just choose "annually" from the drop-down menu and start plugging in your income and fooling around with the number. You can pick your state, too, which helps (if you live in a state with income tax).

You'll see if any income (for example, maybe there's a $5,000 job you think you can defer to 2010) changes result in drastically different taxes. My guess is that at the range you're discussing, there won't be much a difference, but I'm not an accountant.

But still - if you have your own business, I think an accountant might be a good idea.
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post #5 of 13
7/2/09 at 12:23am
Earned Income Tax Credit, for the win
assuming you will pull down less than ~23k or so

Lifetime Learning Credit as well.

Notice these are credits and not deductions

Also, I think the Lifetime Learning Credit may have been tinkered with in the stimulus package; if so, a lot that you read online won't be applicable for next year's taxes. Last year I think it maxed out at a $2000 credit if you were paying 10k of tuition (it's 20% of your out of pocket expenses up to 10k in tuition). However that might have changed.
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post #6 of 13
7/2/09 at 2:46pm
Thread Starter 
Quote:
Originally Posted by crazyquik View Post
Earned Income Tax Credit, for the win
assuming you will pull down less than ~23k or so

Lifetime Learning Credit as well.

Notice these are credits and not deductions

Also, I think the Lifetime Learning Credit may have been tinkered with in the stimulus package; if so, a lot that you read online won't be applicable for next year's taxes. Last year I think it maxed out at a $2000 credit if you were paying 10k of tuition (it's 20% of your out of pocket expenses up to 10k in tuition). However that might have changed.

I can definitely keep it under 23K. I thought for EITC you needed kids.

Other posters are probably right, too. I need an accountant.
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post #7 of 13
7/2/09 at 4:16pm
^ i think you need to be over 25 as well.
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post #8 of 13
7/2/09 at 4:55pm
Thread Starter 
Quote:
Originally Posted by RedLantern View Post
^ i think you need to be over 25 as well.

I am 26 and decidedly small-time.
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post #9 of 13
7/2/09 at 9:08pm
Quote:
Originally Posted by CunningSmeagol View Post
I can definitely keep it under 23K. I thought for EITC you needed kids.

Other posters are probably right, too. I need an accountant.

Looks like my guess was wrong, here's the EITC for 2008:

http://www.results.org/website/image.asp?id=3862

If you have the option of making over 12k, you might as well take it. The EITC was really designed for single parents, but there is a meager allowance for folks with no kids.
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post #10 of 13
7/2/09 at 9:46pm
Thread Starter 
What exactly in the fuck business do people making less than 40K have birthing and raising children??

I love how we reward them for being fiscally irresponsible.
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post #11 of 13
7/2/09 at 9:51pm
From personal experience, there is very little available in the way of deductions while one is a student. That fact tends to disqualify you from EITC, retirement account contribution deductions, etc. If you can accurately plan for next year, you might want to exercise some income "smoothing" to remain in the lowest marginal tax brackets possible.
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post #12 of 13
7/3/09 at 3:59pm
Quote:
Originally Posted by CunningSmeagol View Post
What exactly in the fuck business do people making less than 40K have birthing and raising children??

I love how we reward them for being fiscally irresponsible.

The EITC is actually the largest federally administered anti-poverty program in the country. I think about $35-40 billion per year in 'welfare', it's just not called that. It's just done thru the tax system, instead of a direct handout as a check each month. The public is oblivious to it.

Politically it's a very good way for the moderates and center-Democrats to say they are "cutting welfare" while still having in place, or growing, an anti-poverty program. Republicans can say they are "cutting taxes" at the same time with the EITC.


Quote:
Originally Posted by nicad2000 View Post
From personal experience, there is very little available in the way of deductions while one is a student. That fact tends to disqualify you from EITC, retirement account contribution deductions, etc. If you can accurately plan for next year, you might want to exercise some income "smoothing" to remain in the lowest marginal tax brackets possible.

Students can get the EITC if they are 25 years old or older.
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post #13 of 13
7/3/09 at 7:02pm
What is your health insurance situation? Because I am self-employed, I can deduct my health insurance premiums, as well as my contributions to my HSA.
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