
According to the IRS you are a private contractor employed by Google - mikecane
http://www.etymonline.com/index.php
======
DanielBMarkham
I'm always amazed, when the-tax-system-sucks posts come up on HN, how quickly
most commenters are to trash the author and/or lecture the complainer on how
wrong they are.

There is a impedance mismatch at work in our system of governance that's not
going away any time soon. The government makes laws by sticking people into
little boxes and making rules for those boxes. This system of boxes and rules
-- the tax code -- is becoming more and more removed from reality by the day.

You make 10K a year selling things at yard sale, nobody is the wiser. You make
10K selling pot, nobody is the wiser. You make 10K by putting little bits on a
server somewhere, you're a business. Why? Because Google can report you,
that's why.

You buy socks from Amazon from a house in one state, you have to pay taxes.
Buy the same socks from another state, pay no taxes. Order overseas, no taxes
no matter which state you are in.

In fact all of these are businesses -- or none of them are. It's like arguing
about how many angels can dance on the head of a pin. We have this word
"business" which has some kind of vague meaning, so we attach a bunch of rules
to the abstraction.

We have a 1900s view of how things work that we are desperately trying to take
a hammer and pound into a 21st century reality.

In point of fact, the economy works because people are constantly adapting to
new circumstances, trying to do the best they can. As the rules get more and
more complex, more and more people will end up being quite surprised at the
situation they end up in.

Personally I think the system is broken beyond repair -- too many politicians
are architecture astronauts -- but however it turns out, I have immense
sympathy for the author of this article.

~~~
mechanical_fish
_We have this word "business" which has some kind of vague meaning, so we
attach a bunch of rules to the abstraction..._

It isn't quantum mechanics. The rules which the OP professes not to understand
boil down to this:

1) Everyone owes income taxes and Social Security/unemployment ("FICA") taxes
on all of their income. To restate this in a fun but cartoony way: everyone is
a "business". [1] No philosophical debate necessary.

1a) Except: If you get a W2 form along with some of your income, that income
already had the FICA taxes paid on it (and, if the estimate is accurate, most
of the income taxes, too). This feature is designed (among other things) to
make the accounting so easy for most people that, if they are minimally
numerate and are willing to actually read the IRS instructions, they can pay
taxes with a one-page form without hiring an accountant.

1b) If you can't understand what I have said so far, hire an accountant.

2) If you earn more than a few hundred bucks without getting a W2 form for it,
you owe FICA taxes. If you can't or won't figure out what Schedule C is, hire
an accountant. [2]

3) Business expenses are deductible. If your non-W2 money is going right back
out the door to pay business expenses, you may owe nothing. Keep track of
those expenses (throw the receipts in a box, buy everything on a special
credit card, hire a part-time bookkeeper, or -- god help us -- learn how to
keep an account book). Then declare them; if you can't figure out the forms,
hire an accountant.

\---

Still too abstract for you? Here's rule zero:

0) Hire an accountant. Do what the accountant tells you.

 _One hour_ of accountant time, at any point over the last few years, would
have been enough to save the OP.

\---

Now we are in a position to discuss your other point: Why do people often get
so harsh when folks propose to "simplify" the tax code?

Let's not ignore the elephant in the room: Mostly, it's because so few of
these proposals are in good faith. Most of the tax-related writing that
crosses one's field of vision is the direct or indirect result of politically-
motivated lobbying efforts by individuals who are trying to lower their own
taxes relative to others. We try to block these for the same reason that we
block spam.

But another reason is that many people want to pretend that accounting isn't
important. They ask: Why does there need to be so much accounting? Why can't
life be simple? These are very likely the same people who don't understand the
need for so much computer programming. Shouldn't computers just be simpler?
Can't we just write it all in Visual Basic? Can't it all be done by kids on
minimum wage? Can't we just hand it all over to Microsoft and let them handle
it? Why can't we just outsource all that stuff to some foreign country? Why
can't computers program themselves? Shouldn't it all just "work"? Weren't
things so much better back before we had all these terribly complicated things
like the personal computer?

It gets tiresome. Society is complicated. Deal with that. Learn basic
accounting, or hire someone who did.

\---

[1] Note: I am not an accountant and you should hire a real one. You can
detect the real ones by the moan of despair that they just made when they read
my last sentence.

[2] I can, but I won't. Accountants are not expensive relative to my time. In
fact, they have an astonishing tendency to pay for themselves.

~~~
ryanwaggoner
_Everyone owes income taxes and Social Security/unemployment ("FICA") taxes on
all of their income._

Actually, this isn't true; the Social Security portion of FICA (which is most
of it) is only paid on the first $106k of your gross income (in 2010).
Additionally, the word "income" in your sentence reveals some very complex
questions about the differences between gross revenue, gross income, modified
adjusted gross income, etc. The "income" against which you pay taxes can vary
greatly from the actual cash coming into your bank account, thanks to a
variety of deductions and credits. I own real estate that produces positive
cashflow but I take a "loss" on it every year according to the IRS, offsetting
some of my other income.

Your best advice here is to hire an accountant :)

~~~
mechanical_fish
Thank you for providing a moan of despair, right on cue! According to my off-
the-cuff hypothesis, this suggests that you have the soul of a CPA. ;)

Obviously, my pocket-sized rule of thumb isn't designed for people who earn
$100+K per year. Those people can afford accountants. Likewise, people for
whom adjusted gross income is a necessarily complex calculation involving the
phase of the moon can probably also afford accountants; if not, they need a
simpler or more profitable financial plan.

Hiring an accountant isn't a particularly difficult thing to do. They're on
every street corner. In the month of March, you'll find people dressed in
costumes standing at the side of the road, advertising them. [1] And even the
robot tax accountant built into Quicken Online was pretty good, in my limited
experience. Would Quicken Online have caught the OP's FICA problem? I don't
know, but quite possibly. I've never tried to declare substantial quantities
of non-1099, non-W2 income in Quicken before, but you'd think it would at
least pop up an ominous dialog box.

\---

[1] A friend of mine had this job once.

~~~
gregpilling
Yes, TurboTax would have caught this.

------
larsberg
It wasn't entirely clear from this article, but it looks like he was paying
normal income tax on the money coming in, but failed to pay self-employment
taxes. I have talked to more than a few iPhone developers whom this happened
to as well -- forgetting about that extra 15.3% can really hurt.

But, did he remember to track and deduct all of his expenses? The flipside to
that income is that the server costs are all deducted from it. If he really
was "just barely covering costs" with his Google ads income, it should be
15.3% of nearly zero dollars. He may even be owed a refund if he was paying
full income tax on the ad revenue without deducting server costs.

I am not an accountant, but I've dealt with SE tax and had a few
"conversations" with the IRS in the past. For all the worries about them being
biased, I've found them to be fair, as long as you have precise documentation.

~~~
tomjen3
I don't understand the US tax system, but are you supposed to pay more money
when you don't have a job than when you do have a job?

~~~
100k
Theoretically, your employer pays half the employment taxes and you pay the
other half. When you are self-employed you must pay all of them. Of course,
this simply equates to W2 employees being paid less income.

~~~
chopsueyar
...or 1099s being liable for more taxes.

------
camz
Hey guys. Sorry for the slow reply. Thanks Cullen King for the shoutout. I'm
traveling to meet a client so I wasn't able to check HN as often as I usually
do.

I'll email him shortly later today to offer my help directly. But I'll post a
few thoughts just so that anyone else in a similar position will be prepared.

Everyone pretty much hit the mark with the self-employment tax issue. SE Tax
is a 15.3% tax that you have to pay on income earned from a business.

It sounds like the etymonline guy pretty much got hosed from paying income tax
on the income but failure to pay the SE Tax.

Google issues 1099s to anyone that earns over 400 or 600 dollars so the IRS
knows if you're making money.

But, from the sound of his explanation. His server and upkeep costs should've
generated enough expenses to wipe out his income. I'd have to speak with him
directly and more in depth but that is the impression he left in his plead.

Also, there are ways to avoid paying SE tax entirely. If you incorporate into
a S Corp and pay yourself a reasonable income, the rest would be excluded from
SE Tax. An Scorp is a passthrough entity which means that all income is not
taxed twice like a regular Corp. You pay tax on the income once on your 1040.
But because the scorp is still a corporation, then you wouldn't pay SE tax on
that income because the distribution is a dividend. You don't pay SE taxes on
dividends.

Also, it seems like the taxpayer isn't clear about his options once the audit
has commenced. Luckily, I'm sure that the taxpayer could still plead his case
if he has some facts that could help his situation.

But these are my initial thoughts on the situation. I'm going to email him now
and see if he's interested in discussing the issue further.

I'll update everyone on this issue later on if he is willing to allow me to
speak on the matter as a learning experience for everyone.

~~~
polynomial
> Google issues 1099s to anyone that earns over 400 or 600 dollars so the IRS
> knows if you're making money.

Why do I feel like noting this could have saved more than a few words in the
article; at the very least, how was it that this salient fact is never
mentioned?

> Also, there are ways to avoid paying SE tax entirely. If you incorporate
> into a S Corp and pay yourself a reasonable income, the rest would be
> excluded from SE

Ditto. This one note seems a much more valuable takeaway than most everything
in the article.

Not trashing the article, just that camz nails the important points with a
greater economy of words.

~~~
ars
Is you do incorporate you will need to pay corporate taxes, in addition the
corporation will need to pay the employer portion of the SE tax. (So you don't
pay it, the corporation does, and since they need to pay it they reduce your
salary by that much, i.e. it's a wash.)

Becoming a corporation will not reduce your taxes, but it will significantly
increase the complexity. The main benefit it liability, not financial.

~~~
camz
If you create an S-Corp then you wouldn't pay corporate tax since an
S-Corporation is a passthrough entity. Legally you are protected and tax-wise
you only pay on the 1040, but you avoid SE Tax.

I could point you to a number of resources to clarify the issue, if your
interested?

~~~
ars
I am interested. I believe you about the corporate taxes, but I have a hard
time believing you are able to avoid the SE tax.

On way or another the full 15.3% social security tax is going to be paid.

~~~
camz
Hey ars, well the best way to explain the concept is to think about how you
are taxed on dividends. When you buy stock in Google and receive dividends,
you would pay tax on that income on your 1040, but it would not be taxed as a
"self-employment income" and thus SE Tax is not levied.

An S-Corporation is a standard C-Corporation that has elected for special
treatment. Instead of paying double taxation, its income is directly passed-
through to the taxpayer. But, that does not change the character of the
income. The income is still considered a "corporate distribution" or a
dividend. Thus, it cannot be cannot be taxed under SE Tax rules because a
dividend is not "self-employed income."

This rule is found at IRC § 1368 (c)(2) :

In the case of a distribution described in subsection (a) by an S corporation
which has accumulated earnings and profits—

    
    
          1368(c)(1) Treatises Accumulated adjustments account.
          That portion of the distribution which does not exceed the accumulated adjustments account shall be treated in the manner provided by subsection (b) . 
    
          1368(c)(2)Dividend.
          That portion of the distribution which remains after the application of paragraph (1) shall be treated as a dividend to the extent it does not exceed the accumulated earnings and profits of the S corporation. 
    
          1368(c)(3)Treatment of remainder.
          Any portion of the distribution remaining after the application of paragraph (2) of this subsection shall be treated in the manner provided by subsection (b) . 
    

But, note that you must pay a reasonable salary to yourself first to apply
this tax strategy or plan. There are certain pitfalls that you must be aware
of as with any tax plan.

I hope that this has been helpful! =D

~~~
pw
I've always wondered what the proper criteria for "reasonable salary" were.
Care to offer one of your wonderful Hacker News summaries on that matter?

By the way, it's great to see a qualified member of the HN community offering
help to Etymonline. Do let us know if anything comes of it (he's says he's
made contact with a local tax lawyer, but based on your reputation here, I'd
rest easier if he were in your hands ;-).

~~~
camz
Thanks pw, I've read his update on the situation and I've offered to help
guide him through the decision of whether to incorporate his website as a
business or as a non-profit as well as help actually incorporate his website.

I've yet to hear back from him, so I haven't had anything to update. I'm
guessing that he feels comfortable with the information he learned from the
tax attorney and is satisfied with the help he's received.

In regards to the "reasonable salary" issue that's a difficult topic to
explain because its a subjective test. The word reasonable is going to be very
different for the IRS compared to the average taxpayer.

In my experience, a "reasonable salary" is going to depend a number of
factors. The best way to prove that you're getting a reasonable salary is to
have "comps" or comparable positions with the same functions and them take the
average of their salary.

Ex: Your job description is an entry level developer. Average salary is in the
range of 55k to 75k but the mean is 60k. In this situation you could argue for
any salary between 55k and 75k, but the clearest answer would've been 60k.
Subjectivity please a big role in this area.

Also, experience has given me a "gut feeling" on what is reasonable so often
times I go by just guessing based on what I've seen on the past.

Lastly, thanks for the props! I'm honestly surprised that anyone even bothers
to read my posts about boring tax loll but I'm glad to have been of help =D.

------
noonespecial
He's probably not nearly as SOL as he thinks. As others are already pointing
out, he probably just needs to come at it as a "self employed individual".
There is tax for this, but also many deductions. A few choice minutes with a
tax professional would probably clear up most of his problems.

Unfortunately, those minutes would have been a bunch more helpful _before_ he
ended up with penalties for not filing, but again, a good tax professional can
probably help him negotiate a more reasonable settlement.

~~~
jharrison
I agree. He's not as SOL as he thinks, in general. I think where the SOLedness
comes from is that he has a tax bill that he knows he can't pay right now.
It's a scary place to be and probably feels like the end of the world. It's
not (yes, speaking from experience).

It's unlikely that the IRS will do anything drastic in his case. He'll
probably just go on a payment plan and figure out how to move forward with his
website. They'll work with him.

------
kylecordes
It's a simple reality: if you are collecting money by doing something, from a
tax point of view it is almost certainly a business; even if you casually
think of it as not-a-business.

But this person, if they put the brakes on the conjecture and so on, and
instead go talk to an accountant, can probably get it all taken care. It will
take work; it will probably be necessary to refile the last N years of taxes
with the appropriate form on which to list both the business revenues, and
business expenses (of which it sounds like there were plenty). He may even get
some money back.

Of course, doing that work is much less fun than venting.

------
jackfoxy
The income tax system, and the principle of taxing income, is wrong in so many
ways, but I have given up arguing the point. The inertia of the system and the
inertia of individuals is too great to overcome. I've identified these major
contributing factors:

1) Vested interests that like the tax system the way it is.

2) Envy and fear of envy. People who think the income tax takes from the rich,
and people who happily pay their fair share because they have guilt feelings
about their level of income, and think others should too.

3) The last reason is the overwhelming majority think of the income tax system
as THE natural and logical system for raising revenue, having no clue about
how it came into being and evolved.

~~~
moultano
What do you propose instead? A link is fine.

~~~
jackfoxy
The right, even obligation, of the sovereign is to dip a straw in the stream
of commerce and extract revenue. Tax farming was the way to do this in olden
days, a highly inefficient and grossly unjust means. Today the income tax is
the predominant means, and it is sold as the socially just alternative. I
don't want to argue the social justice aspect. I pointed out some
contradictions in another comment.

I will argue for an alternative that is far more efficient and retains
progressive elements.

In the U.S. the tax collection points number in the 100s of millions. This
incurs cost on the sovereign, reducing the value of the collected revenue, and
on the taxpayers, increasing the burden of the tax. It makes much more sense
to switch to a system where the tax collection points number in the 10s of
thousands, and the rules are transparent.

Public utilities are already extremely efficient tax collectors. Take a close
look at your utility bill. The taxes may have confusing names, but they are
there, and the utility collects them and remits them to the sovereign with
very small staffs implementing very simple rules (compared to the IRS tax
code).

Bear with me, I am now getting to the meat. Think of an energy transformation
tax. Whenever energy is transformed (in most cases combusted), it is taxed.
Somewhat like a value added tax, but only for energy. For instance, coal at
the electrical generator: taxed; natural gas to heat a building: taxed;
gasoline or diesel pumped into a vehicle:taxed; electricity at a meter: taxed.

Utilities are already set up to do this. Just bring on oil and coal companies
and a few others. Those are your tax collectors.

Social justice / progressive tax? The utilities are also already set up to do
this. So-called _life-line_ or base-line rates on bare minimum consumption
don't get taxed. Likewise a minimum level of gasoline and diesel consumption
could be tax free to individuals.

Energy consumption underpins virtually all economic activity. There is no
escaping taxes in the underground economy. Energy theft can be made a special
case of crime with appropriately draconian punishment.

And do you really want to _soak the rich_? What do you think their energy
footprint looks like compared to the common man's? Even when all they do is
clip coupons.

Concerned about rising CO^2 levels? Tax hydrocarbon conversion higher than
others. That which you tax you get less of. That which you subsidize you get
more of.

The economic analysis of tax rates on different fuels is very feasible
compared to analyzing the entire economy. I don't underestimate the capacity
of elected politicians to complicate and demagogue anything, but an annual
debate on energy conversion rates would be far more transparent than the
budget process.

Of course it would be a big shock to jump to such a system in a single year,
and this has only been a brief outline of such a plan. Better to implement
over several years and dedicate the IRS to catching tax cheats from the old
(income-based) system while it is mostly phased-out.

~~~
notahacker
The correlation between energy use and ability to pay large tax bills is at
best, loose. Alaskans on average consume >5x the amount of energy New Yorkers,
which certainly doesn't reflect their respective per capita incomes
<http://www.census.gov/statab/ranks/rank30.html>

_On average_ the rich use energy more than average people, but the
proportional difference isn't huge, and it's pretty safe to assume the top 1%
of earners aren't consuming _anywhere close_ to 20-30% of household energy.

Replacing income tax with a levy on energy would be regressive beyond belief,
to the point where I don't think it would be possible to match the returns
generated by the current system _and_ maintain a minimum tax-free level of
fuel consumption that would allow the average person in some states to stay
warm and be able to travel to work on a daily basis.

And this is coming from someone who gets by comfortably paying approx 4x the
fuel tax Americans do...

~~~
jackfoxy
Every qualifying person (citizen, legal resident, TBD) would have a baseline
exemption. As you point out energy requirement varies by geography, and the
exemption would also have to be geographic sensitive.

More importantly, such an energy based tax system would result in the vast
majority of tax being remitted by business and institutions, not individuals.
Businesses would not be able to avoid taxation through accounting tricks, but
at the same time the cost to business of paying tax would be eliminated
because it requires no bookkeeping. Like all taxes on business, this reflects
in cost of products and services. Less energy intensive products and services
become more competitive on cost.

------
kevinpet
I've looked through the IRS site and there are explicit statements that if you
have profit from a hobby, that should be reported as "other income". I think
the author could have made a very reasonable mistake.

It is pretty clear that he should have been deducting his expenses from the
site and only reporting the profit as self employment income. If he was
actually making $10k in profit, then he should have been aware that it was
more "business" than "hobby" and used those rules.

For those not familiar, the IRS has a category for a hobby because some people
may have a hobby that looks a lot like a business that loses money. You can't
deduct losses against your outside income, as you can in a serious business
that just happens to have not made money that year.

Not a lawyer, not an accountant. Just someone who can read.

------
cullenking
Where is that camz guy that was offering free tax advice for startups a couple
weeks back? He may be the person to quickly consult, at least as far as what
the next step is: <http://news.ycombinator.com/item?id=1837299>

~~~
cullenking
I just sent him an email with this post, hopefully he'll have ten minutes to
add some wisdom to the conversation.

------
jcborro
He should only have to pay self employment taxes on self employment income,
which at $1500 & 15% indicates he was bringing in 10k / year in google ads,
which seems reasonable with those traffic levels. That is hardly breaking even
unless he was running it on a Cray.

The sorry fact is while you may think your tax rate is 15% or 25%, there is
always that extra 15%, even for the employed. In employee's case, they pay
half (FICA) and the employer pays half, which of course reduces real earning
potential by that amount. It's a scam to talk about taxes rates and only quote
the federal income tax rate.

------
grandalf
Most of this kind of things probably slips under the IRS's radar. Similarly,
when's the last time anyone here declared the value of gifts they received as
income?

The problem with this sort of thing (and the new 1099 rules) are that they
criminalize a large swath of the population. Sure, the violations are minor,
but the fact is if you break the rules you are guilty of a crime.

The problem with this is that if we're all already guilty then it gives
enforcement officials too much power over us.

~~~
chopsueyar
karma whoring...

 _"Did you really think we want those laws observed?" said Dr. Ferris. "We
want them to be broken. You'd better get it straight that it's not a bunch of
boy scouts you're up against... We're after power and we mean it... There's no
way to rule innocent men. The only power any government has is the power to
crack down on criminals. Well, when there aren't enough criminals one makes
them. One declares so many things to be a crime that it becomes impossible for
men to live without breaking laws. Who wants a nation of law-abiding citizens?
What's there in that for anyone? But just pass the kind of laws that can
neither be observed nor enforced or objectively interpreted – and you create a
nation of law-breakers – and then you cash in on guilt. Now that's the system,
Mr. Reardon, that's the game, and once you understand it, you'll be much
easier to deal with."_

------
PedroCandeias
I fully sympathize with Douglas. But I do think he's dramatizing his two most
realistic options a bit too much:

1\. If he runs Adsense, he's not going to get casino or penis ads. Last I
checked, Adsense was pretty strict about that.

2\. Asking users for donations is hardly begging. He's providing (one hell of)
a service in return, so it's only fair.

I've seen this before. People reviling the notion of associating money with
the service they provide, and eventually running into money trouble sooner or
later.

Even if Douglas chooses to go down the nonprofit road, he'll still have a much
harder time than if he just declared etymonline.com a business and ran it as
he saw fit.

------
rbarooah
What level of tax professional does someone in the OP's situation need? Will a
trip to the local H&R block sort it, or does he need to look for someone more
specialized and if so, how would he identify them?

~~~
kls
He needs a CPA in a situation like this, mine a very good one for my area
charges around $600 for my taxes and that is a "Dump Papers" job. In other
words I dump the papers off and they figure it all out. It would be around
$300 for a here is all of my information, it's all organized find stuff I have
missed. Every year, with out fail he has paid for himself and then more. The
first two years I organized everything and did the online DIY tax thing as a
reference. The first year he came in $6000 over the best I could do on the DIY
stuff. I can't to stress it to people enough, if you are a professional making
over $60k, you cannot afford to not have a CPA. You are without a doubt
walking away from money.

------
arron61
You should have sought for a professional tax preparer's advice. Any
professional would have seen your mistake immediately.

You have your regular w2 form's amount from work. Any additional money you
tacked on as additional income, the tax professional would have questioned
where this extra money is coming from.

He or she would have identified that you got extra money as a business (you do
not need a business license) but you must file this in a different form and
pay the appropriate taxes (including social security, medical, and the other
business-related taxes). The tax professional would have asked you for
possible deductions and you could have deducted all your business income from
it.

There's nothing unfair about this. IRS is doing the right thing. It's really
your fault for getting a crappy tax professional or for doing your taxes
yourself. And to add, tax professionals aren't even that expensive.

~~~
presto8
Turbo Tax is also an option. It correctly handles this sort of income.

------
DanI-S
I moved to the US last year and work a regular full-time job. I haven't had to
file taxes before, since I only started work in May. I'm about to launch my
first 'weekend project' to potentially involve some advertising and Amazon-
affiliate revenue. I'm not really clear on what I should be doing and what is
necessary with regards to tax, registering as a business, etc.

Can anybody recommend any good resources for information to help me avoid
situations like this chap has got himself into?

~~~
space-monkey
Get a cheap tax-accountant. It seriously can take years to really come up to
speed on our tax system. It's not so complex that a somewhat trained
professional can't answer all of your questions, and ask _you_ some good ones
in a short session, but it's relatively easy to miss something doing your own
research. Do as I say, not as I do, of course!

------
dmfdmf
Perhaps this is a startup idea for the ambitious types on HN. There are
literally 1000's of very successful blogs making some marginal amount of money
from ads on their site. Most of these bloggers are not in it for the money and
would like a publisher to take care of the business side of things, including
the taxes. Perhaps this already exists but I am not aware of it.

~~~
dotBen
The problem is that the "taking care of business" is basically you putting it
on your tax return correctly.

No one else can really do that for you other than your accountant.

~~~
dmfdmf
Yes, but adding W2 income to your tax forms is pretty easy and insulates you
from all the tax and legal implications of running your own blog for a small
income. Whereas adding a Schedule C for 1099 income exposes you to all those
risks, taxes and complexity. It sounds like the guy who wrote the original
blog post didn't really discuss this with his tax and legal advisors because
his mistake was easily avoided if he had properly claimed the income.

------
frankus
The author mentions thinking about doing an iPhone app, but being put off by
the $9500 price.

I know the revenue share pitch is a big old red flag for any developer worth
their salt (most people who want to do a revenue share have some sort of
scammy half-baked idea with nothing else to offer for which they want half of
the revenue).

But this guy is clearly bringing something important to the table (a curated
database of etymological data), and the app wouldn't be that complicated
(depending on whether the database ships with the app or is lazy-loaded from
the server).

------
mikecane
My question is this: What about Amazon and other affiliate links? And why do I
see the spectre of IRS declaring free services as some kind of "in-kind"
taxable thing, liable to a "use tax" or somesuch? I think this can all
snowball pretty quickly given how hard up budgets are on all levels of
government.

------
daimyoyo
Thus far, I've only made $0.24 with my adsense account so if the IRS wants
their nickel, I'm glad to give it to em. If my site should take off, I'll
worry about it then. But thanks for making me aware of the problem.

~~~
tomotomo
The IRS is at least generous enough to let you make that quarter tax-free.

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tibbon
I'm curious though- could have all of this been fixed by filing and saying,
"look, our expenses 100% meet our income... no tax burden!"?

~~~
gallerytungsten
If he had incorporated, absolutely. From the context of his blog, it seems he
didn't.

~~~
cheald
I'm pretty sure you don't need to incorporate to take deductions on self-
employment expenses. Self-employed income isn't just a free ride to a kick in
the balls - if you're paying that extra 15%, you get to take expenses as
deductions. If it's low-level income that is just covering expenses, you're
not going to owe the IRS a dime.

~~~
ars
I'm 100% sure. You can deduct all expenses including medical insurance for
yourself.

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tocomment
What is he talking about? If he paid taxes on the incomewhy do they think he
owes them?

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chopsueyar
Some 1040Xs?

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pinksoda
You can get a free consultation from just about any tax professional. They
would have noticed your mistake within a few minutes of talking to you.

The IRS usually takes 3 years to find a mistake like yours. It sounds like
you've been filing wrong since 2005. The penalties suck but you got to keep
that extra 15% for a really long time.

Most importantly, you have a really long time(6-12 months) from your initial
notice from the IRS, before they start trying to collect. You couldn't pay
right now even if you had the money, that was my experience anyways. I
received a different letter from them, months later, and was finally able to
pay.

Everyone knows you don't mess with the IRS. I don't get how you did this wrong
for 6 years, never researched it, asked someone, or talked to an accountant.
My gut tells me you probably knew what you were doing.

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duffbeer703
Give Caesar his due.

If you aren't trying to make money, you may be able to report it as a hobby,
deduct your expenses and avoid self-employment tax.

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codexon
Yes, the US tax system is too complex... but I find it really hard to believe
that he didn't make a large profit with 50,000 page views per day with a
relatively static PHP site (hosting cost probably $10/month).

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jrockway
What a whiney baby. You have to pay taxes. You don't have to shut down your
site and sell it to a "spammer" because you forgot to pay. You pay the taxes
and consider it a lesson learned.

There is a reason why Google sent you a 1099 form and not just an account
statement, after all. Now you know what it is. No need to whine about how it's
some sort of conspiracy -- you sell your time to someone, you're a contractor,
you made income, and you pay income taxes. It's very simple.

The rant about the "financial crisis" was also off topic. Selling insurance
really cheaply to people that you should be selling it to for a lot of money
is not the IRS's problem. When the banks can't loan money or give back
deposits, though, that is a problem, and that's why they got bailed out. Most
of the banks paid back their money years ago. TARP is over. You got your money
back. Now you need to do _your_ part and pay what you owe the government.

(Whenever I write an article and it ends up in the tone of voice that the
poster's ends up in, I realize that I fucked up and I'm not going to get any
sympathy. I hope the author also learns that lesson. You make mistakes -- fix
them, don't whine about them. If you want a new tax system, run for office.
Your blog is not going to change anything except the public's perception of
you.)

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terra_t
The guy's a dumbass. If you're making money off your site, it's a business,
just that simple.

It does cost a few 100$ every year, but if you get income from anything other
than W-2 jobs, you'd better have an accountant.

    
    
      I've definitely had little accidents in my filings and minor trouble with the IRS but my experience is that,  with the help of an accountant and some common sense,  these problems can be worked out easily

~~~
gscott
More likely he has a Hobby not a business
<http://www.irs.gov/irs/article/0,,id=186056,00.html>

~~~
smackfu
And the reason for the distinction is so that people do not call their hobby a
business and then deduct their expenses against their other normal income and
evade taxes.

