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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Customer Question

i HAVE A QUESTION REGARDING MY PARENTS THEY ARE BOTH RETIRED AROUND 70 YRS OLD EACH THEY HAVE A VERY SMALL SIDE BIZ WHERE THEY MAKE ABOUT 4000 - 4500 BUCKS A YR MY BROTHER WHO IS A CPA HAS THEM PAYING ALMOST 50% OF THAT IN TAXES NOW MIND YOU IS FORTE IS NOT PERSONAL TAXES HE DOES MOSTLY AUDITS he tries saying because it makes their social security more it makes more taxes come out of the biz he has them paying extra social security tax on the biz and it just seems outrageous to me the tax is so much, why would anybody work once their retired if close to half is going back to the govt
Submitted: 8 years ago.
Category: Tax
Expert:  Merlo replied 8 years ago.
Hello Sammy,

Can you tell me how much other income your parents have from all other sources?

Social security income?

Other pension income?

Interest, dividends, stock sales?

Customer: replied 8 years ago.
hmm i was just going on here just to see if this is even viable their not here so I do not know exactly off hand i can estimate though and be very close i believe combined its 5k a month , interest was minimal maybe 5k for the yr no dividends and any stock was a slight loss if this helps any
Expert:  Merlo replied 8 years ago.
Hello again Sammy,

How much of that $5,000 a month is from SS income?

Customer: replied 8 years ago.
right around halfshe gets 1000 he gets slightly more maybe 1200
Expert:  Merlo replied 8 years ago.
Hello again Sammy,

Based on the information you have given me, it would appear that your parents' top federal tax bracket is 15%.

All income from self employment is automatically subject to the full share of social security and medicare taxes. Those two taxes combined come to 15.3%. In addition, they would then have the federal income taxes of 15%. Assuming they live in NJ, they would also have state taxes of around 5.5%. So all together, they would be paying taxes equal to approximately 36% of their income from this side business. Not quite half, but it is a good chuck of tax to pay.

Earnings from self employment are always taxed at a higher rate because of the 15.3% social security and medicare taxes which must be paid in addition to the regular federal and state income taxes.

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Thank you.
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Customer: replied 8 years ago.
yea well i exaggerated by half but it was probably about 40% I just think its crazy they try to make a litle extra money and get hammered yet the Tom Dashle's dont even pay their taxes Al Capone don't pay his taxes they call it tax evasion and he goes to jail Dashle don't pay its called a mistake, yes thank you for the info I guess my bro was right just don't like the info , one last question right before i accccept which i will, is there any type of write off maybe they can get to lower that 36%, they do write off mileage cause they travel for the biz but thats about it
Expert:  Merlo replied 8 years ago.
Hi Sammy,

What type of business is it that they have?

Customer: replied 8 years ago.
its just mostly transporting paperwork but rather then drive you nuts im thinking there really isnt much besides mileage ill accept even though i dont like the answer you gave me the truth
Expert:  Merlo replied 8 years ago.
Hello again Sammy,

If they are basically in a delivery type business, then mileage would likely be their main source of deductions. However, there may be a few other deductions they could use if any of the following might apply:

Partial depreciation of home computer used to keep track of their business income and expenses

Office supplies purchased

Cell phone used during deliveries

There wouldn't appear to be a great deal more they could deduct, but they might squeeze in a few more deductions if they apply.