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FAQ

How do you lower tax withholdings on your paycheck if they are too high, other than by claiming allowances on your W4? Claiming non-existing allowances is technically illegal and can be penalized by a fine.
You claim as many allowances as you need to avoid over withholding. I’ve used dozens when complex situations unexpectedly got me months ahead of schedule or beyond my total tax liability for the year.They’re allowances not dependents. The IRS Form W-4 instructions explicitly tell you to increase them to account for things like itemized deductions.There’s no limit as long as you’re withholding substantially all of your taxes in a timely manner after income is earned.Refer to IRS Topic No. 306 Penalty for Underpayment of Estimated Tax and IRS Publication 505 (2021), Tax Withholding and Estimated Tax for the safe harbor rules. Provided the payments were timely, penalties for under withholding aren’t assessed when you withhold the least of $1000 less than your total liability, 90% of this year’s total, and 100% (110% for income over $75K married filing separately or $150K otherwise) of last year’s income tax.You can supplement your W-4 withholding with quarterly estimated tax payments when earnings vary from unpredictable situations like bonus, stock value when restrictions lapse, and capital gains/losses.I track my projected earnings and year to date withholding in a text file, recalculate my remaining state and federal income taxes when my situation changes, and work backwards from that to a number of allowances plus extra using formulas in IRS Publication 15 (Circular E) Employer’s Tax guide and Method B from the California DE 44 Employer’s guide. Unlike the W-4 and California DE-4 worksheets this accounts for year-to-date withholding and does not round up.I aim for $500 state and federal refunds so if I’m busy in the first quarter I can defer filing without penalty.
If you win a lawsuit for unpaid overtime wages in California, when do you pay taxes on this, and how much?
The how much will depend upon what tax bracket the settlement pushes you into and your filing status.If you were single, the chart would look something like this for federal taxes. If you're married, it'll look a little different (but conceptually similar).California looks like this:All taxes should be paid by mid April of the year following the annual period in which the settlement was received.e.g. settlement received in 2021. taxes due by mid April 2018.Some settlement recipients may need to make estimated tax payments (in the year the settlement was received) if they expect their tax to be $1,000 or more after subtracting credits & withholding. Information on estimated taxes can be found in IRS Publication 505, Tax Withholding and Estimated Tax, and in Form 1040-ES, Estimated Tax for Individuals.
What should you keep in mind if you plan to sell a gain of over $1 million from stock you have held for over 5 years before 2021 and you're a resident of California?
1. Qualified Small Business Stock ramifications2. May have to make estimated tax payments for California3. Will be subject to higher federal tax rates in 2021 - not subject to higher rates if under $400,000 (single filer) or $450,000 (joint filer)4. Whether or not to pay your 4th quarter state tax payment before end of calendar year
Does an LLC electing to be taxed as an S Corp in California have to pay the $800 franchise fee in its first year?
No you do not have to pay the LLC fee. However, S-Corporations are subject to a 1.5% tax on net income. California Franchise Tax Board
How can I break even on taxes as a 1099 in California?
It is a lot more difficult to get your tax estimates exactly right when you work as an independent contractor vs employee. As an employee you pretty much know what your gross pay will be and that is the starting point to calculate taxable income. Additionally an employer for a W2 employees does all the calculations and paperwork to actually get the taxes to the state and IRS. As an independent contractor, you pay tax, both income and self employment, based on net profit or your gross pay after business expenses. Independent contractor gross pay tends to not come in set amounts each month and expenses can obviously vary greatly month to month.You have two option to avoid late payment interest:Pay in 90% of what you ultimately end up owing for this year in equal quarterly estimated payments by Jan 15 following the tax year orPay in 100% of what you owed for the previous tax year in equal quarterly installments by Jan 15 following the tax year.In both cases you also have to pay in the balance of what you owe if any by April 15.Estimated tax payments are paid in using Form 1040ES . If you want to use method 1 above, the instructions in the form have a worksheet to eyour taxable income. For simplicity, I tell my self employed clients to figure 20 - 25% of gross revenue as what they will owe in federal taxes. State taxes will typically be an additional 4–8% if you live in a state with income tax. California for example, which will be at the higher end of the tax rate range.Estimated tax deposits are dueApril 15June 15Sept 15Jan 15The dates will vary by a day or so, depending on holidays and weekends, but don’t wait until the last minute if you are trying to make tax deposits on time.Finally, if you are overwhelmed by all the the estimated tax deposit requirements, don’t stress. The interest rate on under paid taxes is about 3% annually right now, so even if you miss, the penalty is not that terrible. You would be better off to be sure you pay your credit card on time.
Is there a penalty for not paying taxes quarterly?
There may be in the United States. Evaluate your need to make estimated payments after receiving supplemental wages via equity grant vesting and bonuses. Do the same when recognizing capital gains. Limit the need for estimated tax payments by updating your W4 allowances when the tax law or your situation changes.With uniform income, penalties are assessed for quarters where your estimated tax payments plus withholding are less than the smaller of 22.5% of current year income tax or 25% (27.5% for income over $75K married filing separately or $150K otherwise) of the previous year’s tax. Total withholding is treated as if it were uniform regardless of when the money was withheld.For non-uniform income from situations like seasonal employment, bonuses, and stock sales you can use the Annualized Income Installment Method which applies the same percentage thresholds for year to date annualized income - 25% of 90–110% for Q1, 50% of it for Q2, etc.Each quarter you can switch between the two estimated tax methods, but must make up for any shortages changing to uniform withholding. You can also use different safe harbor provisions.No penalty will apply for 4th quarter underpayment if taxes are paid in full by January 31st.There’s also a $500 civil penalty for intentionally reducing withholding on your W4, plus criminal penalties up to $1000 and/or imprisonment up to one year.See IRS Publication 505 Tax Withholding and Estimated TaxNote that states have their own rules, like Californiahttps://www.ftb.ca.gov/individua...
How can you claim unemployment on taxes?
As of 2021. unemployment compensation is reported on the “Unemployment Compensation” line on form 1040. (On the draft version of 2021 Form 1040, this would be line 19). Prior to 2021. it is reported on the “Other Income” line.State laws vary, in some states (e.g.: California), unemployment compensation is not taxed.You should also set up withholding, or make estimated tax payments.Consult a qualified tax professional for reliable advice.
How often do I have to pay NJ state taxes as a single-member LLC?
Your question is a good one, since some of these states make things very confusing.  Be happy you are in New Jersey and not California, as we will describe...The first issue to be addressed is "situs" -- where your business derives income.  Every state wants to get taxes paid on the income derived in that state. So you must allocate income to whichever state you derive it from. The you file a return in that state.You have a "single member LLC"  and that is a "disregarded entity" for tax purposes, meaning that no separate income tax form is filed for it. Thus, any income and expense is reported on your 1040, just like your wages and interest income, etc.  On your 1040, you'll file a Schedule C, Business Income and Expense, which will show the income and expenses, reaching a net income, upon which you will owe federal tax. The state return will be based upon this Federal income, except that you must allocate the income between states in which your business operates. This is all done on individual state tax returns, no separate state income tax form is filed for the LLC.   Any state tax resulting from this allocation is paid just like any other state tax you might owe: it's due on an "as you go" manner, made by quarterly individual estimated tax payments due April 15, June 15, September 15 and January 15.The natural question is, how in the world do you ehow much you will owe in the first year, or any year for that matter?  You can default to what you owed last year, once you have filed a return there. For the first year, you've just got to make a guess, or face an "estimated tax penalty" which is essentially interest on the money you didn't pay on time.  In most states it averages about 5% per annum. Figuring that you owe only for part of the year, it usually works out to 1 - 2.5% of the taxes.  Not totally awful, especially considering the accounting gymnastics you may have to go through to make a reasonable estimate.Most states have an annual fee that has to be filed with the Secretary of State. This is not an income tax, it is like a license or franchise fee. However, some states have a separate LLC income tax return that is due additionally. For example, if you had a California LLC, you would be paying an additional $ 800 minimum tax, and a "gross receipts tax" on all sales over $ 250,000.  Ouch.  So, be happy you are in New Jersey, high property taxes and all....
What is it like to make over $300k annually?
My wife stays home with our children and I am a small business owner. We are in the US.Last year my income was around $700,000. It is highly likely our income this year will hit around $850,000. My employees are well compensated and happy (relatively) and we pra good work product to our clientele, which keeps them happy.You gain a different perspective making this kind of money. Our net worth has slowly graduated to where it’s now around $3,000,000 - that number sounds great but much of it is illiquid (my business is worth about a million dollars and we have probably a million dollars tied up in real estate). True wealth would be having enough assets to produce an upper middle class lifestyle without having to work.My greatest asset is my brain and the ability I have to do the work. I keep it well protected - I’ve eliminated any risky hobbies and what not and have 4 million dollars of life insurance, in addition to hefty disability insurance policies.So what does 700k/year get us -Our house is relatively modest. We bought it in California mid-recession in 2021. It is a large house (3500 sq. feet) on a relatively large lot (1/2 acre), but it is older. What the income gets us is the ability to do some major home improvements without having to borrow money. This year we are re-doing the entry way (5k), the stair way (6k), a bedroom (10k), and painting the house (10k). We are doing all of this from just our income and those numbers just fall off my fingers writing this and it’s as if it were just monopoly money.Our cars are also relatively modest. I drive a 5 year old Toyota I have no intentions of getting rid of any time soon. We did spring for a newer SUV model last fall - and we paid for it in cash. What was it like writing a check for $46,000? Again, it felt and feels a lot like playing Monopoly. Needed the car, wrote a check, moved on with life.We have 3 children with acute medical needs. Our maximum deductible on our health insurance is $13,000 which was met by the end of January. What happened when I got the bill? I called up the healthcare provider and paid it and moved on with life. We do appreciate the life saving care our children have received and we donated $10,000 at the end of last year to one of the hospitals our son was treated at. We will never have enough to ever have our names on a building, but we do like giving back where we can.My wife still shops relatively frugally. Our children are in large part dressed at Goodwill just because they go through clothing so quickly. She can buy them something that they decide they don’t like and we can just write it off as no big deal. She does spend a bit more money on their shoes generally speaking.We save a lot of money every month into retirement. Every year we are saving $24,000 into our 401k plan, $12,000 into IRA accounts, $12,000 into a life insurance policy, and $30,000 into our children’s educational accounts. In addition I have a company savings account I am putting $48,000/year into. If everything goes well by age of 62 (I am early 40s now) we will have a liquid net worth of around $6,000,000 (if everything goes well with our real estate, that net worth would likely be closer to 10 million with my company’s value and real estate value). The plan would be to have money conserved for our three children with special needs, although one of them will likely die before we do due to his acute medical condition.Our children are spoiled. I caught my 16 year old talking and complaining about “the rich kids” around town as our home is in close proximity to a couple of the area’s exclusive private schools (which she does not attend). I think she lacks perspective, but I don’t blame her. I grew up in a lower middle class home without any real amenities. Our kids just have about anything they want. Bad grades in math? We’re getting a tutor. Want to try tennis? We put them in private lessons. Want to go on expensive school trips to Hawaii, San Diego or other cool locations? Sure. Burning $1,000 is not a big deal. We do worry about how this will impact them as they age, but they seem like real good kids and they have nice goals. Our oldest wants to either be a high school teacher or try musical therapy, while our third child wants to be a doctor. Spoiled or not, I love them and want to give them the best life experience possible.We give and we give a lot. Of that $700,000 of income last year, we charitably gave close to $60,000. We do believe in paying tithes/offerings to our church, but we also believe in privately giving. We have done this in smaller increments more times than I can count. No one usually knows but us and the receiver. People are always profoundly grateful for the help and we feel profoundly blessed to be able to help out.We have given to local political campaigns a bit. I would earound 4–5k each election cycle. I did not give to our current President because I believe he is a wretched and immoral man, but we did give a lot locally. I must say it trips me out when I get calls from prominent local politicians. “I have Mr. Prominent Politician on line 1”.I was talking about our 1st quarter financial results with my wife the other day, and I commented that our first federal estimated tax payment would have to be around $75,000. How did that feel? It felt like, you guessed it, Monopoly. It is just a number on the computer that I see go from my bank account to the government to keep everyone happy and the government out of my affairs.We do just about anything we want without financial consequence. We literally never think about money. Want to take the kids out on Saturday for a lunch and bowling after getting our two cars detail cleaned? Sure. $400 gone. Do we miss it? No. Out to dinner? No big deal. An impromptu trip to Monterey or Southern California? It’s fine. A new years trip to Newport Beach staying in a vacation rental right on the beach? Great. We just never, ever have to worry about money.So how does it all feel? What do I think about it?I think it’s crazy. I still can’t get over it . My first job out of college was $15.50/hour and at the time (2021) I thought it was more money than I could even handle. I’m about to pay the feds $75,000 - which is twice as much as my annual earnings were in 2001/2002.I see the nearly two decades of life choices and sacrifice wrapped up in it. I see and feel the hatred I had of my job when I quit it in 2021 to go out on my own. I see the sacrifices my wife made when she chose to marry me, and the trust she put in me as her husband. I see how scared she must have been when I quit my job to try it on my own, and how unsure she must have felt. I see the hours I had to work (and have to work) to make this all happen. In short, the money feels like a natural consequence of good decision making….and a bit of luck.We probably spend way too much even given our other relatively modest lifestyle choices. Last year we spent $225,000 even though our house payment is only $1,500/month. I think back to 12 years ago when we were living off of 4k/month and just wish at times we could go back to that….and save the rest. In the end though the only thing that would buy me would be the ability to retire 5–6 years sooner, and that’s it. If something happened to me or if I lost my ability to make the money, we could scale back fairly quickly.Probably the most important thought - Money. Does. Not. Make. You. Happy. End of story. Money provides more options but it will not change who you are for the better. If you are a rotten poor person, you will likely be a worse rich person. If you are a bitter person in the middle class, you would like be a bitter rich person. If anything money will accentuate the bad in you.I dunno - I do my best to work hard and pra good product to the public. I fail a lot but I try real hard. I am profoundly grateful for this opportunity and am unsure why most people will not experience life in the same way.