Adoption in the U.S., At A Glance [INFOGRAPHIC]

November is National Adoption Month in the United States. In light of that, we wanted to focus on some of the most important issues for (potential) new parents. Namely, what kind of adoptions exist, how long it can take to adopt and what an adoption costs. Also, there is a tax credit that some new adoptive families may not know about.

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A Hopeful Future Parent's Guide to Adoption

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Five Important Tax Implications of Starting Your Own Business

Ed note: There’s a perception that owning your own business means you get all kinds of tax write-offs. To be sure, there are some tax benefits that are available to you. However, there are also a number of new tax complexities that you must account for. We detail a few of the most important changes here.

1. Your income is taxable even if you reinvest it into your business.

As a business owner, any profit your business makes each year will be taxable to you, regardless of whether you withdraw it or reinvest it into growing the business. Luckily, any deductible business expenses can be used to directly offset that income. This is unlike employees, whose unreimbursed expenses are subject to a threshold based on 2% of their adjusted gross income and are only deductible if they itemize their deductions.

TaxImplications2. You’ll be subject to self-employment tax.

Your net profit from your business will be subject to the self-employment tax. This tax pays for contributions to both social security and Medicare. Currently, you will pay self-employment tax at a 15.3% rate on your net self-employment earnings up to $117,000. Any earnings above that amount would be subject only to a Medicare tax at a 2.9% rate. An additional 0.9% Medicare tax will be imposed on self-employment income in excess of $250,000 for joint returns, $125,000 for married taxpayers filing separate returns, and $200,000 in all other cases. While self-employment tax is imposed in addition to income tax, you can deduct half of your self-employment taxes as an adjustment to income.

Though paying the additional tax may seem burdensome, it actually designed to act the same way as the social security and Medicare taxes that would normally be withheld from the wages of an employed individual. Furthermore, the social security portion of the tax increases the potential social security benefits you may receive at retirement.

If you choose to incorporate your small business you will not be subject to self-employment tax on your earnings. However, you will then be subject to payroll taxes, since shareholders who perform services for their corporations are required to be paid Form W-2 wages subject to social security and Medicare withholding.

3. Your filing requirements will change.

Normally, individuals with taxable income under certain threshold amounts are not required to file a tax a return for the year. In 2014, a single individual generally only has to file if their adjusted gross income exceeds $10,150. However, if you are self-employed you are required to file a tax return if your net income from your business is $400 or more. This is true even if the $400 is your only income.

4. You will be required to make quarterly estimated payments.

Most taxpayers satisfy their tax payment requirements when their employer withholds the various taxes from their paycheck. However, when you’re self-employed, you’re on your own. Self-employed taxpayers satisfy their tax payment requirements by making estimated tax payments quarterly online or via the mail. If you also work as an employee for another business in addition to your self-employment, you may be able to satisfy your required tax payments by increasing the amount of withholding from your wages.

If you don’t make the required payments, you may be subject to an underpayment penalty. The penalty equals the interest rate charged by the IRS on deficiencies multiplied by the amount of underpayment during the underpayment period. Each quarterly payment will have its own underpayment period, which will run from the due date for that payment until the earlier of (1) the tax return due date for that year, or (2) the date on which the underpayment is actually paid. The penalty can be avoided if you meet certain specified exceptions or waivers.

5. You’ll be subject to more scrutiny.

Unfortunately, being self-employed will be in one of the IRS’ favorite audit target groups. Though being audited doesn’t mean you’re in trouble unless you’ve actually done something wrong, it is best for you to always be prepared for the possibility. In particular, you should carefully record your income and expenses in order to claim the full amount of the deductions to which you are entitled. Certain types of expenses, such as automobile, travel, entertainment, meals and office-at-home expenses, require extra attention because they are subject to special recordkeeping requirements or limitations on deductibility.

Tax Rules for Sole-Proprietors with Employees

Ed note: FICA, FUTA, FIT. No, that isn’t the start of some wacky Dr. Seuss book. It’s just a few of the alphabet soup of taxes that you will need to know once you bring on employees. Lucky for you, our Tax Institute small business expert Mike Slack is here to help out.

HiringEmployeesHiring employees is a telltale sign that a business is growing and becoming a stable success. The only difficult part is complying with the various reporting requirements.

Generally, employers are required to withhold and deposit federal income tax (FIT), state income tax, social security and Medicare taxes, and federal unemployment tax. Depending on where the employee is working, they may also be required to withhold and deposit local income taxes.

Even when a sole-proprietor hires an employee, the owner’s earnings from the business remain subject to self-employment tax, and they cannot be treated as an employee as well. The exception to this rule is in the case of corporations, where the business owners are considered to be employees of the corporation as well.

Federal and State Income Tax

When hiring a new employee, one of the first documents that should be received is a Form W-4. This form helps determine the amount of federal and state income taxes that should be withheld from the employee’s wages. Failure to receive a Form W-4 from the employee means that the income taxes from their wages must generally be withheld at the maximum rate provided for their amount of wages.

  • How It Is Reported: Most employers are required to file IRS Form 941 quarterly to report income tax withheld from the employee’s wages, while agricultural employers file IRS Form 943 annually. Reporting for state income tax withholdings is varied.
  • Year-Reporting: In addition to Form 941 or 943, an employer is required to file IRS Form W-3, with the employees’ Form W-2s attached, annually with the Social Security Administration.

Social Security and Medicare Taxes

Employers generally must withhold part of social security and Medicare taxes (referred to as “FICA” taxes since they were created based on the Federal Insurance Contributions Act) from their employees’ wages and pay a matching amount themselves.

Currently, the withholding rate is generally 6.2% for social security and 1.45% for Medicare. The employer is responsible for paying an equal amount for each employee. However, once the employee’s wages for that year exceed a certain amount ($117,000 in 2014) their wages are no longer subject to the social security portion of the tax.

Since 2013, employers are also responsible for withholding the 0.9% Additional Medicare Tax on wages and compensation that exceeds a threshold amount based on the employee’s filing status. However, employers are not required to pay matching amounts for the Additional Medicare Tax.

  • How It Is Reported: Most employers are required to file IRS Form 941 quarterly to report FICA withheld from the employee’s wages, while agricultural employers file IRS Form 943 by February 28 annually.

Unemployment Taxes

Federal unemployment tax (FUTA), together with state unemployment systems, provides for unemployment compensation payments to workers who have lost their jobs. Most employers pay a federal and state unemployment tax. Currently, FUTA is only paid on the first $7,000 in wages, while for states this wage base will vary. Only the employer pays FUTA tax, meaning nothing is withheld from the employee’s income to pay the tax.

It is important to note that FUTA rules differ in the case of business employers, farm employers, and household employers.

  • How It Is Reported: The employer should file IRS Form 940 annually to report the amount of FUTA tax on wages paid to employees. Different forms will apply for each state.

Simple Tips for Keeping Your Thanksgiving Budget in Check

Ed note: Thanksgiving is deceiving. You think it’s all about the togetherness! Not about gifts or material things! But it’s about the food. And the food can get expensive. Don’t sacrifice the fun. Instead, use these hacks to prepare an awesome meal on a budget. Leer en español. Everyone loves Thanksgiving – it’s full of […]

Marketplace Open Enrollment Starts Now

Ed note: We’re going to be talking about the Affordable Care Act a lot over the coming months, because it can have a dramatic effect on your tax return this year. But right now, we just want to help make sure you are prepared when it comes to insurance coverage in 2015. Leer en español. […]

How Are Direct Sellers Taxed

Ed note: Do you work at home as an independent distributor for a multilevel marketing company? If you do, you probably understood that sentence. If you’re thinking of being a direct seller of some of your favorite products – maybe it’s Origami Owl, Usborne books or It Works! – then we have some information about […]

Celebrate America Recycles Day: Conserve Resources, Reduce Waste and Save Cash

Ed note: Did you know, that you can recycle your wine corks? And in some states wine bottles have a deposit fee that you can get back. Before you take these as an excuse to get started on a little day drinking, read on to learn a bit more about how and what to recycle […]

Ins and Outs of Air Travel [INFOGRAPHIC]

Holiday travel is around the corner. Before you book that flight, here’s what you may need to know about the best times to fly, the worst airports to fly into and more. We also have a few tips on how to save as much money as you can on that getaway. Leer en español. Click […]

Help for Finding Small, Local Businesses

Ed note: There’s a lot of shopping going on this month – Black Friday, Cyber Monday and Small Business Saturday. While it’s always great to get a good deal, shopping locally has some added benefits. For example, research from the Institute for Local Self-Reliance found that $45 of every $100 spent at a hometown shop stays […]

Tips For Building Your Network as a Freelancer

Ed note: We are big believers in making connections online (obviously). When it comes to professional networking, you may be overlooking some important things you can do virtually, as well as a few important steps to take in offline situations. Experienced freelancer Miranda Marquit walks through her tried-and-true ways to expand her network and gain […]