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Tax season is upon us and it seems I have been getting more questions about taxes than anything else these days…so, this week, a bit of Taxes 101…Keep in mind, I am not a tax professional. These are just basics that I would encourage you to speak with your tax preparer about or research online.
First of all, if you are teaching outside of the studio/gym system, either as a contractor or private instructor, you need to apply for a city tax permit, a.k.a. a business license. Cities are really cracking down on this and penalties are high. So go out and do it! (I wrote an earlier tip about business licenses…email me if you want me to send that to you).
Typically, city taxes are paid annually. Then there are federal and state taxes (if your state has taxes). When you are self-employed, federal and state estimated taxes are meant to be paid quarterly. Quarterly taxes can either be calculated according to prior year’s income or current year’s projected income. Speak with your CPA about this, and they will easily figure out the appropriate payments.
Estimated taxes are paid on April 15, June 15, September 15, and January 15, each payment covering the quarter preceding it. Therefore, January estimated taxes are actually applied to the previous year’s (last quarter’s) earnings. Again, penalties can apply for failing to make sufficient (not to be confused with “exact”) estimated payments.
And one more thing to keep in mind…first quarter estimated tax payments are due the same day as your annual returns (April 15), but are completely separate payments. Your annual tax bill on April 15 reflects the prior year’s earnings (i.e. April 15, 2017, you will have a refund or payment due for the tax year 2016), but your estimated taxes on April 15 reflect the first quarter earnings of the same year (i.e. April 15, 2017, you will pay estimates for the first quarter of 2017).
And that’s the mini yogis minute tip of the week. Check back every week to learn something new!
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