TaxMamas TaxQuips

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Today TaxMama hears from Mike in the Tax Parlor, who tells us “I started working overseas in Kuwait for a US company in March 2007. I am a USMC contractor planning on working this contract through September 2008. Will I be able to take advantage of the foreign earned income credit exclusion? And what is the current amount of the exclusion?”

Hi Mike,

Roger B. Adams, EA, our international tax expert, provides an answer.
http://irsexam.com/instructors.php#roger

Sorry Michael, if USMC stands for the United States Marine Corp. you are a government contractor and, as such, are not eligible to take the exclusion.

If, for some reason, you are not a government contractor, the exclusion amount is $82,400 plus the housing exclusion which varies between cities but whose base exclusion amount for 2006 was $13,184. (You subtract this from your housing expenses to arrive at the housing exclusion amount)

TaxMama adds, there may be other ways to reduce the impact of U.S. taxes on your compensation. For instance, per diem travel expenses may be higher than your housing allowance. Or the foreign tax credit can reclaim some of the foreign taxes you have to pay. If anyone knows, it is Roger. So schedule some time with him to do planning before tax season comes around and it’s too late.

Also, be sure to read IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, all the way through. http://www.irs.gov/publications/p54/index.html

And remember, you’ll find answers to lots of questions about foreign earning income issues, and other tax information, free. Where? At TaxMama.com

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IRS Publication 54

Tax Guide for U.S. Citizens and Resident Aliens Abroad

Today TaxMama hears from Tom, who’d like to know. “Can you point my wife and me to any basic resource for information on tests to determine whether one needs to do withholding or taxes in general for nanny services? And, then, how to actually execute the necessary record keeping and filings.”

Sure Tom,

Ahh…I just found a free Calculator
http://www.nannynetwork.com/NannyTax/index.cfm

OK, here we go: IRS Publication 926
http://www.irs.gov/publications/p926/index.html

It will tell you at what quarterly/annual income level you become responsible for dealing with payroll taxes.

Also, consider reading the instructions to Schedule H – I found them quite informative when we had to file for clients.
http://www.irs.gov/pub/irs-pdf/f1040sh.pdf – Form

http://www.irs.gov/pub/irs-pdf/i1040sh.pdf – Instructions

As to execution, are you any good at doing payroll? If not, I urge you to get a payroll service.

Here’s IRS’s list of providers
http://www.irs.gov/efile/lists/0,,id=101120,00.html

http://www.paycycle.com/external/business/resources.jsp PayCycle charges about $300/year, less the first year)

Or use a Nanny tax service. They tend to charge about $400 or so per year – but are apt to give you more customized help and advice
http://www.4nannytaxes.com/ http://www.nannytax.com/

In fact, consider talking to Kathy Webb at 4nannytaxes – she struck me as having a good grasp of the issues.
http://www.4nannytaxes.com/INFO/media-contacts-nanny-taxes.cfm

I hope that helps?

And remember, you’ll find answers to lots of questions about Nanny Tax, and other tax information, free. Where? At TaxMama.com

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Nanny Tax Withholding Calculator

IRS Publication 926

Household Employees

IRS Schedule H

Household Employees

IRS's list of payroll service providers

PayCycle

Payroll Tax Processor

Nanny Tax Service

Nanny Tax Service

Today TaxMama hears from Martin – and several other MarketWatch readers, who say. “In your April 14th article in the Tax Watch section of “Marketwatch.com” you advised that if you are short of cash to pay your taxes you should file for an extension and pay when you file. I believe that’s incorrect: When you file for an extension you’re supposed to pay the estimated amount owing.”

I want to thank for your notes. Especially those who pointed out that I had previously written that the extension is an extension of time to file – not to pay. That means you’re reading my column!

And you’re absolutely correct.

IRS does want you to pay your taxes with the extension.

Have you ever wondered what happens to you if you don’t pay those taxes with the extension? Have you wondered what fiendish tortures IRS dreams up to inflict upon you to ensure that you never stray again?

Actually, all that happens is you pay underpayment penalties and interest on the unpaid balance. Over six months, until October 15th, it amounts to a total of about 7% – not the end of the world, if you just need a few more days or weeks to come up with the money. Much cheaper than most credit cards.

Cool, isn’t it?

So, just because IRS wants something….doesn’t mean we should give it to them. Does it?

And remember, you’ll find answers to lots of questions about tax tricks, and other tax information, free. Where? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips. Please click on the subscribe link and join us.]

To make your comments, please visit TaxMama’s Parlor at TaxTwist.com.

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Today TaxMama hears from Georgette in the Tax Parlor, who says. “While I assume that I should be reporting the income I earn online, ClickBank in particular, I am unsure about state tax for PA. I am not charging state tax for digital downloads. So do I only have to report the income I make to the federal government on my tax returns? Or is there something in particular I should be doing?”

Hi Georgette,

Ah, come on my friend, you know the answer to this.

You live in PA, report all your income to both IRS and your state.

OK, your concern is the sales tax you’re not charging on your downloads.

You should be charging sales tax to anyone with a PA address.

So go forth and contact your state’s sales tax department and get set up. If your sales in PA were minor for last year (like $500 or less), don’t sweat last year. If they were $1,000 or more – file returns for last year and pay the penalties. (In between those numbers…use your best judgement.)

And Georgette, if you’re really planning to make a decent living online, it’s time to treat your business like a business. First thing – get a good local tax professional to help you.

And if you can’t find one locally, let me know and I’ll try to point to someone online who can help you. OK?

And remember, you’ll find answers to lots of questions about online income, and other tax information, free. Where? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips. Please click on the subscribe link and join us.]

To make your comments, please visit TaxMama’s Parlor at TaxTwist.com.

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