https://turbotax.intuit.com/taxfreedom/
Turbotax “freedom edition” online was free last year for AGI under $31,000 as far as I remember.
It really shouldn’t be that bad. Just start going through the Turbotax interview and have your son have numbers ready for income and mileage/expenses (good practice for him). It should calculate it for you.
Like I said I would only deduct expenses that are easy to prove.
This was already touched upon, but for clarity… a schedule C or C-EZ accompanies a 1040; it cannot be filed with a 1040EZ or 1040A. Schedule SE will be used to calculate the self-employment tax.
He needs three different Schedule C (or C-EZ) forms because he has three different types of SE income. You don’t lump it onto one Schedule C (or C-EZ). And yes, he needs Schedule SE too, all along with Form 1040. Don’t forget about any state filing requirements, also, any state sales tax considerations.
If he only works one game per day, there is no mileage deduction as it’s considered commuting.
Wow, this is daunting! And we are in a township with a local Earned Income Tax, so that is another aspect to look into.
Thanks to all for the detailed assistance. I have two nephews who are CPAs so I am hoping to score some free guidance from them, as this looks to be way more work than I expected.
If your CPA nephews are auditors and not tax specialists they may not have the answers off the top of their heads.
This is not as complicated as you make it sound. Turbo Tax will walk you through everything (except Local Tax but how bad can that be?).
Your son can deduct mileage as none of the random baseball fields are his permanent places of business, His home base is at home where he uses computer to fill match reports, check emails for new assignments, etc. He can write off prorated expenses for cell, internet, computer, cleats, (whistles? Do they use whistles in baseball?)
If son is not paying for internet access then I don’t think he can deduct prorated expenses for this. He would also need to know how much he uses it for business.
If he didn’t know to keep track/keep receipts of his expenses, it will be hard to do after the fact.
But mileage can most likely be proven and fees he incurred for ebay sales too.
Yes, the umpire income should be simple (although received conflicting info above about whether mileage can be counted or not, so that’s a question). And @CCDD14: There are no whistles (or crying) in baseball.
But the eBay income/expenses will be tougher to quantify. Most of what he sells comes from yard sales, so he has nothing resembling receipts for cost of goods sold. Sometimes he buys from actual brick and mortar stores but has not been keeping receipts for those items. Paypal and eBay fees are pretty simple, but to be technically correct, he is supposed to also track “profit” from shipping (i.e., when the shipping charge exceeds the actual postage cost, which often occurs but usually for just a dollar or two). And he’s supposed to be able to verify the cost of gas used for trips to the P.O., driving around to buy stuff, etc.–but that’s something else he didn’t keep track of–and it could be a significant amount at 54 cents/mile. Plus there’s an issue with what constitutes “inventory,” which I am just starting to read about. Going forward, I will work with him to set up a spreadsheet; but there’s a lot of info that we’ll just have to estimate. And yes, @WISdad23, the cost of my time to figure this out will far exceed the tax due.
I (incorrectly) thought that as long as he was under $400 from each income source, he didn’t have to file. So I figured he was OK with the umpire income, and the occasional work for the neighbor, and eBay. But when he started making “real money” from eBay, I realized that he was going to be well beyond the $400 threshold–plus it turns out that all self-employment income sources are considered (which makes sense, but I just didn’t think of it). His dad and I were impressed that he had come up with some creative ways to make money over the summer without regular access to a car; but at this point, straight W-2 income from a supermarket cashier job is looking pretty appealing.
If you live in PA you probably know your tax collection agency for Local Tax. Go to the website and download the form. You can fill it out after PA state return is done. I think you have to attach the PA schedule Cs as proof for income.
Turbotax did my D’s federal and PA state return for free last year with “freedom edition”.
If he can’t substantiate some of the expenses he can just not claim them.
In my opinion if he used his car and paid for gas and since he is self employed, he should be able to claim the mileage to/from games he umpired for.
If he used paypal for payments the fees should be listed and ebay should also have listed the fees they deducted.
If he hasn’t kept receipts then I wouldn’t claim shipping costs and such.
About the inventory I’m not sure. If he is not continuing ebay sales after he starts college, he could maybe donate the rest of items. But you can ask the family CPAs about that.
This is just my opinion. And I am not a tax expert, simply a mom who has to deal with our finances.
And I agree, a W2 job is much easier on the (tax) paperwork.
Just my opinion, but at this level of income you are making it way too complicated…following is from turbo tax re: Dependent tax filings
“All taxpayers who are claimed as a dependent on someone’s tax return are subject to different IRS filing requirements, regardless of whether they are children or adults. Since a dependent is unable to claim their own exemption, a tax return is necessary when their earned income is more than the standard deduction for a single taxpayer, which in 2013 is $6,100. However, the threshold decreases to more than $1,000 when the dependent’s income is unearned, such as from dividends and interest.”
In the OP situation I don’t think I would even file a return (see above, $ 6,100 threshold may ne higher now), but would put the child’s cash earnings on the FAFSA as income and put the assets at $500.-. If he has more than that spend it on something useful so your FAFSA is accurate. At these levels you are not changing any potential aid in a meaningful way no matter what.
No. If you have more than $400 from self employment income, you need to file a federal return.
And even if you made less than that, you need to report the income on FAFSA.
If the son had W2 income he could make up to $6,300 in earned income before owing any federal tax, but rules are different with self employment income.
As an employee, the employer deducts the FICA taxes and pays half of them. As a self employed person you pay them.
He has $ 375 in “umpire” earnings, I stand by my opinion as to how I would handle it, but each to his/her own opinion.
Good teachable moment.
@mommdc Thank you! A light bulb just went off with post #32! (Although the rest of the posts were also very helpful.)
For the IRS, he will have to pay self-employment tax, which compensates for not having SS and Medicare withheld from his pay. He is responsible for both sides, employer and employee, which is why it seems so high. But he won’t owe any federal income tax as he is under the earnings limit for a dependent. Tax due is too low for quarterly filing to be required.
Will have to check what the state and local returns require, but expect he will owe income tax for both as he will be filing a federal return that shows SE income.
For FAFSA, will report his income where they ask for earnings. But that will be next year, right, since I complete this year’s FAFSA using 2015 income?
As far as the NPCs, which I’ve been running incorrectly, they’re only for our use, so no harm done. I will re-run one or two but I suspect little change.
He has a senior year elective class called (I think) Entrepreneurship where they develop a business plan, research tax implications, etc., so maybe he will be an active participant in figuring this out after all.
Correct.
@ blossom, forgive me if I’m reading into your post too much, but if you were implying that I was trying to circumvent the tax system and/or the FAFSA reporting that is not the case.
Odd jobs/ shoveling, lawn work comes under the “household” work IRS exemption and is not reportable. Hobby income is a grey area at best, especially for a minor. “He thinks he made $500”…has he accurately calculated the full cost basis of his inventory, communication and shipping costs of the hobby…?
My advice was to spend down assets down wisely and report income and assets accurately on the FAFSA. Again, sorry if I’m misunderstanding your reply.
Hmmm… I’m not familiar with this exemption. Can you provide a reference?