Does Fica And SS get 'taken' when I file my taxes?

behaviorkeltonFebruary 15, 2009

I just went through the "TaxCut" software, and see what I owe.

My naive guess was that I'd owe a little more than they are asking.

So, some of what I owe is due to my private contract work. On top of the usual federal taxes, I understand I owe FICA and Social Security on that income.

Is that stuff included in my Federal filing?

(I have no state income tax)


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It is my understanding that FICA and Social Security are one in the same.

Here is a link that might be useful: FICA/Social Security definition

    Bookmark   February 15, 2009 at 5:10AM
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On the forms it will be known as self-employement income. If you declared as self-employed and followed all the forms for that category you've got it.

There are basically three forms of employment. Employee, self-employed and partner.

If you work for a corporation you are an employee.
CEO and janitor are both employees.

If you work for yourself you are self-employed.

If you incorporate yourself you are an employee.

    Bookmark   February 15, 2009 at 8:02AM
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In conversation, people always remind me that my actual pay will be much less because all of that medicare/FICA business will be taken.

As I march through TaxCut, it doesn't quite make it clear that all that is being dealt with in the calculation.

Hmmm, maybe I should go to a legit tax preparer for my first go round.

Actually, the most frustrating thing is dealing with investments.

I put a few thousands into a mutual fund ($300 at a time)... then a sell at a small loss... but nowhere on my 1099 does it say "He lost money!". It just says I sold and recieved money. But it was less than I put in.

If I lose money, I wonder if I can just skip reporting it at all!

    Bookmark   February 15, 2009 at 9:04AM
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Your sale of mutual funds shares must be reported on Schedule D if you don't want a "love letter" from the IRS in a year or two. On Schedule D you report your sales price, purchase price, the date of sale and the date of purchase. Your 1099B is simply the document that reports the sale to the IRS. Your broker may be able to supply you with your basis or you may have to calculate it from your purchase records.

Your self employment income and expenses are reported on Schedule C. Your return should include a Schedule SE where your Medicare and Social Security taxes are calculated. Be sure the numbers on lines 5 and 6 of the Schedule SE appear on the proper lines of your Form 1040.

You need to do research in the IRS publications to be sure your return is done correctly even if you use tax prep software or visit a tax professional. Tax prep software is great as long as you understand the questions that are being asked and you understand exactly how and where the information is supposed to appear on your tax return. Using tax prep software does not eliminate the need to read and understand IRS publications and instructions if you don't understand the questions.

Over the last 15 years, I spent many hours correcting self prepared returns because taxpayers did relied completely on the software, didn't do any research and didn't review their final results for reasonableness. The typical taxpayer is more than capable of preparing his own return, but sometimes it makes sense to use a tax professional when you have a unsual situation or many questions.

While no one here has given you any incorrect information, a message board isn't the best place to ask for tax help. The posters may or may not have good answers. I've seen some incorrect and incomplete responses on message boards.

    Bookmark   February 15, 2009 at 9:44AM
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I'm no tax preparer but it sounds to me like you need some professional help. I finally had to start having someone do mine and I think it's a great value.

    Bookmark   February 15, 2009 at 9:52AM
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My expenses are so small, for my private work, that they don't even amount to the standard deduction. That's not complicated.

I suppose my recurring problem is decoding how much I invested, and how much I gained or lost from the sale. The cost basis thing. It is unbelievable that it isn't all laid out nice and clear on the broker's 1099 form.
How much did I invest? How much did I make (or lose)?
How complicated is that?

Anyway, I'll see how this one goes.

If anything, the IRS is getting more than they would if I actually knew what I was doing!

I'm completely uninvested right now, so maybe I'll stay that way for next year.

That's good advice, though --> I'll go to a tax preparer for a nice "how to do your taxes" lesson next year.

I would be surprised if the IRS wanted to audit me because they don't think I took enough deductions...or because I mistakenly claimed to *lose* $100 rather than $500 on my investment. (man, it was a small frig'n investment which makes me annoyed to have to fool with it).

    Bookmark   February 15, 2009 at 11:40AM
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I also think engaging a tax preparer is money well spent. While all testing done over my school years and beyond indicated I have/had the capacity to understand and solve complex problems, when I look at all the tax forms I go brain dead. Perhaps the flatlining is by choice, really, since I discovered the hardest tax task I now have is to wait for the "important end of year tax documents" to roll in.

    Bookmark   February 15, 2009 at 11:57AM
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"My expenses are so small, for my private work, that they don't even amount to the standard deduction."

There is no standard deduction for business expense. Every deduction in a business is deductable no matter how small.

"I suppose my recurring problem is decoding how much I invested, and how much I gained or lost from the sale."

You have all your sales slips, just add them up. The tax programs will ask if you have any investments and just follow the questions.

I finished the 8th grade but my philosophy is that if you can read you can do anything. And I like to read.

    Bookmark   February 15, 2009 at 12:19PM
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Hendricus is right on the no standard dedcution for business expenses. Those expenses for your private work or self employment belong on your Schedule C Profit or Loss from a Business (sole proprietor), not on Schedule A Itemized Decuctions or Form 2106 Employee Business Expenses.

However, your basis or what you paid for the stock or mutual funds you sold can be calculated from your purchase orders. Your broker may be able to provide you with your cost basis. I am assuming that you quit investing and then sold the stock. If you continued to buy stock at the same time you were selling stock, you may be subject to wash sale rules. Wash sale rules come into effect if you sold stock or mutual funds at a loss and bought the same stock or mutual funds within 30 days of the date of the sale.

I really think you need to consult with a tax professional THIS YEAR before you send in your 2008 tax return. You appear to be a bit confused. It's cheaper to pay for a tax pro for just one year than it is to pay interest and pealities 2 or 3 years down the road.

    Bookmark   February 15, 2009 at 1:30PM
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I am with Hendricus. If you read, you can do anything. I find this is especially true with taxes. It is never a good idea to hand over a box of paperwork and receipts and trust that someone else knows what they are doing - after all it is your signature on the bottom of the form. If you don't understand what was done to fill in the tax form, how can you sign it? You need to be able to follow the logic of the tax preparer. Once you get to that point, you may as well have done the forms yourself.

We use Quicken, so we use Turbo Tax for taxes. You can always go from the Turbo Tax screen to the actual tax form. Since I spent many years doing the taxes the "old" way on paper tax forms, I will often pull up the tax form for a screen to see what Turbo Tax is doing.

My taxes have never been easy. I used to have to claim alimony. Once I had to do moving expenses and early distribution of some kind of tax-deferred investment. These days we have my income that is self-employment income, DH's employment income up until December, then retirement income, plus his self-employment income as a part-time musician. If you take the time, read the tax publications available for free online, and UNDERSTAND what the tax software is asking you, it really is not that hard. Take your time and read all the tips and clarifying pop-ups.

    Bookmark   February 15, 2009 at 2:20PM
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There are two forms related to self-employment. Schedule C (Business Profit/Loss), and Schedule SE (Self-Employment tax). Business expenses are taken on Schedule C. The bottom-line total (profit or loss) from Schedule C is transferred to Form 1040, and to Schedule SE. Tax from Schedule SE is also transferred to Form 1040.

SE tax consists of the employee AND employer portions of Social Security (6.2%) and Medicare (1.45%), for a total of 15.3%. Plus FUTA (Federal Unemployment Tax Act), which is typically 0.8%, but that depends on how state unemployment is handled.

Form 1099-DIV itself does not list the basis for stock and mutual fund purchases, although the included documentation from the payer may outline some details on that, and those details may not exactly match the actual purchase records. It is the individual taxpayer's responsibility to keep purchase records.

    Bookmark   February 15, 2009 at 2:28PM
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I noticed that the mini-things that I claimed for the business actually did result in some improvements... so there isn't a relation to the standard deduction.

I'm wondering how an audit would look if they look through my stuff only to discover that I paid too much. Would there still be penalties?

My past income tax situations have always been simple, and doable on the 1040EZ. Today, my life isn't terrifically complex, but I am dazzled by the minutia involved in tax prep.

Hmmmmmm, Fair Tax anyone?

    Bookmark   February 15, 2009 at 2:33PM
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Taxes usually aren't so difficult that the average person can't do the return himself. People just tend to get flustered and afraid of making a mistake when confronted with reading instructions and doing the simple math. I have *never* paid a professional, have always done it myself, even with self-employment and capital gains from sale of mutual funds involved.

Business costs are deducted as expenses on Schedule C, has nothing to do with the standard deduction and personal exemption(s) on Form 1040/A/EZ.

    Bookmark   February 15, 2009 at 6:03PM
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Congratulations to everyone who does his own taxes. I agree that taxes aren't so difficult for the average person that they couldn't do them themselves IF they take the time to read and understand the forms and instructions. Not everyone wants to spend the hours it may take to understand applicable tax laws.

A good tax preparer will insure that you, the taxpayer, will understand your tax return because as Nancy said the taxpayer is ultimately responsible for the tax return. I know that I and my coworkers will take whatever time necessary to explain the return. I always tell my clients to call me if they get home and have more questions or if they have any questions throughout the year. I really mean it. I'd prefer to talk to my clients about their financial transactions so they understand the tax implications what they are planning on doing.

Again, congratulations to everyone who does their own return and takes the time to understand tax law, the forms and how the number flow from one form to the next. Unfortunately, there are many people who use tax prep software and never bother to open an IRS publication.

    Bookmark   February 15, 2009 at 9:12PM
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Congratulations to everyone who does his own taxes.
I'll second that.

I look at it this way - if I had confidence in my ability with quantum mechanics, I'd be a quantum mechanic. Same goes for taxes or anything else someone else is good at but simply can't imagine there are those out there who might not be.

    Bookmark   February 15, 2009 at 10:30PM
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I understand that beginning in 2011, your 1099 from your broker will include your cost basis data as well as the income numbers. Not sure how all this gets tracked across brokerage firms but that's my understanding.

    Bookmark   February 16, 2009 at 7:44PM
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dave100: that's interesting and had to do some surfing. Cutting & pasting the whole article I found since this was quite readable and, Luddite that I am, my attemps at links go off into cyberspace.

Don't throw away anything you've faithfully saved till now - quarterly statements, confirmations, etc. since the buy/sell, gain/loss tracking goes forward and it's still up to you to be able to track your dealings backward. Right?

I have a couple of brokerage accounts as well as investments outside brokerages - no problem there as I can see. But I initially received, as a gift, a block of stock in our local power company back in the 70's. (I still have the initial cost basis, etc. paperwork). But I have always reinvested the dividends to purchase more shares and the new cost basis is, of course, reflected on the next statement. I've saved every one of these statements over the approx. 40 years in the event I'd ever sell some of it since any sale is going to involve a real mix of share price.

I like hard copies of things; I don't do much online tracking. Consequently I have boxes of "important" investment papers all in good order. The beauty of it is my heirs will not be pulling their hair out trying to find things when THAT TIME comes. (We've done enough sifting in dealing with others' estates to have learned some valuable lessons.)

The article:

[Broker-dealers, mutual fund companies and fund custodians are updating systems to comply with the cost basis reporting requirements included in the Emergency Economic Stabilization Act of 2008.
Brokers must begin reporting cost basis to the Internal Revenue Service and to taxpayers for trades beginning Jan.1, 2011; fund companies have until 2012 to comply. Custodians are not required to comply with the legislation, but they provide the technology as a service to their broker-dealer clients.

For their part, wirehouses already track this data so the deadline is a non-issue for them.

"The tech implications for cost basis are significant and if firms don't start now, they will never get it done in time," said Sean Cunniff, research director for brokerage and wealth management at Needham, Mass.-based TowerGroup.

The aim is to guarantee full reporting of capital gains so the IRS receives its fair cut of investors' profits.

Estimates from the Government Accountability Office and IRS put the amount of underreported capital gains at $7 billion to $11 billion per year.


Ironically, because the technology allows for improvement of cost basis reporting, many advisers will be able to harvest losses more efficiently, reducing their clients' tax bills.
Costs estimates for the enhancement range from $200,000 for a small, self-clearing broker-dealer to a multimillion-dollar expense for custodians, according to a participant who asked not to be identified.

Systems within broker-dealers that require overhauls are the account transfer systems that interact with brokerage firms, as well as their order management systems.

Historically, tracking cost basis has been a headache, a responsibility of investors who would have to dig through dusty old confirmations to determine the amount they paid for a stock or bond.

For many firms, completing the fixes requires a multistep process that can frazzle the nerves of even the calmest, most experienced technologists.

"This will take months just to scope out, and then you must build or buy a solution and integrate it with your current system," Mr. Cunniff said. "Then you test. Then you fix the bugs. Then you deliver."

At Raymond James Financial Services of St. Petersburg, Fla., the battle to meet the deadline is under way.

"We know it's a significant change and that's why we've started working on it already," said Josh Bohlander, senior manager in information technology.

Hindering the project, however, are questions about how reporting should be done for wash sales, gifted securities, sales-load-basis deferral adjustments, and for fixed-income securities.

"These are items not pinpointed in the current legislation," said Dale Skinner, a technology product manager with Raymond James. "We and the rest of the industry still need more clarification from the Internal Revenue Service on particular areas."

Other firms are also waiting for the IRS to set a clear direction for the development effort.

"We are still waiting for the IRS to make its final recommendations," said Teri Manton, a director in the product management and development group of Pershing LLC of Jersey City, N.J.

Marjorie Qualey: Would like to see the IRS determine the format it wants the reports to use. "We still need to know exactly what format the IRS wants us to report it in," said Marjorie Qualey, vice president of product development and technology at Schwab Institutional in San Francisco.
In response, a spokesman for the IRS said it was "continuing to work on the issue."

Rather than build the upgrade themselves, some companies are retaining third parties to provide the software, an approach that OppenheimerFunds Inc. of New York pursued.

"Due to the complexity of building this into our own systems, we decided that it made more sense to partner with [GainsKeeper]" to build this enhancement, said Christine Polak, vice president of operations at the mutual fund company, who declined to disclose the cost of the software.

GainsKeeper, a provider of cost basis and tax software, is a division of Wolters Kluwer Financial Services in Minneapolis.

Over the next two years, Ms. Polak will collaborate with the vendor to provide clients with cost basis data, in the form of their choice.

Under the legislation, clients can select the way they want to report cost basis data to the IRS, such as the average cost basis or on a first-in-first-out basis.

Although earlier attempts to pass the cost basis rules failed, Pershing assumed that passage was inevitable and began working on the project, Ms. Polak said.

"The whole idea of these regulations isn't new to us; we are very well-positioned and have been working closely with [the Securities Industry and Financial Markets Association of New York and Washington] for several years now in planning for this legislation," said Ms. Manton.

So far, the firm has developed a Form 1099 tax and year-end statement that breaks out gains and losses and addresses the bulk of the regulatory requirements, she said.

Some broker-dealers, such as Cambridge Investment Research Inc. of Fairfield, Iowa, and Securities America Inc. of Omaha, Neb., receive cost basis information from their custodians, Pershing and National Financial Services LLC of Boston, respectively.] (Davis Jankowski, InvestmentNews, December 14, 2008)

    Bookmark   February 17, 2009 at 12:35PM
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Ever since we started renting out real estate, we have paid a professional to do our taxes. That was the same year my mother became ill and I took over her finances (and then settled her estate when she died). Our tax preparer saved us quite a bit of money that first year, and I feel confident that she is doing everything correctly. Before we sign, she spends an hour or so explaining everything she has done, and why. She is very conservative about what deductions can be taken.

It has become even more complicated since we bought real estate in another state and now have to prepare two state income tax returns, the long form federal return, and Schedule C for a small self-employment income.

I used to do my own taxes (and then the joint return with my husband the year we got married). I was completely self-employed for a while, and the thing I could never get the hang of was depreciation. I know I didn't do it right. However, the amounts were so small, it probably didn't make any difference. The real estate is another ball game altogether, and I would just be lost doing it on my own.

Look at all these people in public life who are having tax problems. I wonder how much of it has to do with the complications involved in any income other than payroll?

    Bookmark   February 20, 2009 at 4:37PM
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If you didn't keep (or can't find) the information from when you bought your investments, and the quarterly or yearly statements that showed you any earnings (interest, dividends, what was re-invested) from those investments, both of which are needed to determine your COST BASIS for the investment--and which YOU will need to provide to a tax preparer-- call the brokerage from whom you bought the investment (ie ameriprise, TRowePrice, or the mutual fund itself if you bought directly) and ask them for a printout of that info. They should be able to dig it up in one form or another for you, although it might not be a nicely summed up format. I had to do this with mutual funds that I bought 27 years ago from Dean Witter (which had become Morgan Stanley)--they were able to give me a printout of every dividend etc but I had to go through and add it up. Taught me to keep records, that's for sure!!

    Bookmark   February 28, 2009 at 10:10PM
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