Estimated Taxes

Discussion in 'Indie Related Chat' started by Adrian Lopez, Feb 28, 2010.

  1. Adrian Lopez

    Original Member

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    Is it just me or does paying estimated taxes (taxes on estimated future income) feel a bit like getting mugged? It's not that I'm against paying taxes -- I understand their purpose -- but why do I have to pay taxes on money I haven't made? :mad:
     
  2. Maupin

    Original Member

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    It's not just you. Hate them.
     
  3. Pallav Nawani

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    Also spare a thought for salaried people - who never get to see a big portion of their income!
    Can't you manage by greatly underestimating your future income?:)
     
  4. andrew

    andrew New Member

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    Also hate them, with a passion. This year I'm paying a penalty for not paying enough last year... although I needed the $$ at the time, and the penalty is small enough that it was worth it.

    - andrew
     
  5. Grey Alien

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    You only have to pay estimated taxes if you are self-employed right? If you set up a company then you only pay taxes after your financial year has ended. At least that's the way it works in the UK.
     
  6. ChrisP

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    Wow. I had never heard of these before. They sound utterly barbaric. Come to Australia, we don't have them. :D
     
  7. cliffski

    Moderator Original Member

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    Not true. At a certain point, the inland revenue demand you pay half of the estimated next years corporation tax in advance, half-way in. There is likely some income threshold where that kicks in, but its not super high.

    Although when it first happens you feel annoyed, its actually very fair. Corporations could otherwise sit on the interest from a whole years tax money, rather than pay it to the govt in installments each month like people on a salary have to do. Corps still have an advantage in that its only twice yearly.
     
  8. Roman Budzowski

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    So in UK you don't pay taxes based on monthly income (each month)?
     
  9. JarkkoL

    JarkkoL New Member

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    In Finland you pay taxes every month estimated based on the profit your company made in previous fiscal year. Afaik, you have also option to change that estimation if you have a good reason for it. For the first year you estimate the profit yourself when filing the company to withholding tax register, which pretty much everyone estimates to be 0 unless you don't know what you are doing, so that you don't have to pay tax during your first year. Of course if in the end of the year you end up making profit based on the financial statement you pay the tax at that point (28%). It's quite important to make sure that your company doesn't make any profit ;) To me it sounds like a fair system.
     
  10. Gary Preston

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    It's paid yearly or in two lumps depending on your earnings.

    It can also become a little more complicated depending upon what date you're using for your accounting period compared to the actual tax year (6th apr to 5th apr)

    The income you'd declare would be based on the end date of your accounting period that falls within the tax year. So for example if you're using a June accounting period 1st July to 30th June, then in 2010, tax returns have to be filed by the 31st Oct (I think you can file later if you don't expect the tax man to calculate your tax) for the Apr09/Apr2010 tax year. As your earnings for July09 to Jun2010 ends outside that, you actually base your 2010 tax return on the income earned during July2008 to June2009.

    As you can see, one of the benefits from a June year end is that you don't actually pay tax on your earning for the year 2008-2009 until 2011. Where as with an Apr/Apr tax year you'd have already paid the tax at the start of 2010 and would be using 2009/2010 earnings for your 2010 tax return. You get to keep the money for up to 18 months (and earn interest) rather than 6months with a Apr period.

    That's for self-employment, I've no idea how company taxes and tax periods may differ. We do have to pay estimated taxes too in the UK even as self-employed, however if you're using a June year end the estimate isn't really much of an estimate as you'll know your earnings before you have to make the estimate :D

    It's sufficiently complicated though that I just leave it all up to my accountant. Worth every penny.
     
    #10 Gary Preston, Feb 28, 2010
    Last edited: Feb 28, 2010
  11. Roman Budzowski

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    Maybe it's fair if you run business with steady income, but with business like game development I don't see how it's fair. Year 1 I make a block buster game and earn $1 million. Year 2 my estimated taxes are high, but my next game is a crap, so not only I don't earn for a living, I also have to pay to much to the government.

    In Poland I pay taxes each month based on the accumulated income from the start of the year, so if I earn a lot in month 1, a pay a lot of taxes (19% flat rate) in month 2, but if I don't earn a penny in month 2, I don't pay a penny in month 3 (and if that continues till the end of the year I get tax back if I paid too much). That's fair. The only exception is December, when you pay 2x tax calculated for November and we don't pay in January for Dec. Guess why my income for November is always low.

    cheers
    Roman
     
  12. Gary Preston

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    In the UK, if you know earnings for the coming year are going to suffer and not meet the same level as the previous year or even that you're going to make a loss for the year, then you can make a claim to reduce payments on your account. SA303 If my memory serves. We did this when I moved from IS contracting and into game dev as I knew the first years income would be lower.
     
  13. JarkkoL

    JarkkoL New Member

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    Earning $1M in your first year is pretty unusual scenario ;) Anyway, like I said if you have good reason to lower the estimate you can do that and you can obviously pay salaries to yourself to lower your profits. Got $1M in your first year? Just pay yourself $1M in salary (minus side expenses) and your profits goes to zero (you obviously don't want to do that due to progressive taxing, but you got the point). There are also some ways to pass profit from one fiscal year to the next as unpaid salaries (& side expenses) and to my knowledge some production expenses as well.

    Having to pay taxes based on accumulated income would totally suck and be pretty much what you have to do as a regular employee. If you just got $20k in sales of your game you would have to pay tax for it instantly, but then the production & marketing expenses for your next game are like $10k which you would have to pay from your taxed income, duhhuh.
     
  14. Grey Alien

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    Well I never knew that. It must be higher than £62,000 as they never asked me last financial year. The only thing I can find is that a small company is classed as profits up t £300,000.
     
  15. Jack Norton

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    "Fair"? that's a dream compared to here (and probably Germany, France, UK)! And 19% flat rate :eek:
     
  16. spoiltvictorian

    spoiltvictorian New Member

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    Lower than the US as well.

    Think of what these indie devs could be doing with this money. :( Just keep telling yourself that supporting bank bailouts and military budgets are indeed better uses of your time. ;)
     
  17. electronicStar

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    Here in Sarkozystan, an advance on health care and retirement program(more backbreaking than income taxes) was the norm. I have read recently that it had been suppressed for very small businesses, but it's still not a very good country to start a business.
    Income taxes are paid monthly or in 3 parts, calculated from previous year. Well that's for individuals and very small (one person) businesses.
     

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