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.
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.
I agree that income is a complicated issue when it comes to tax and that hiring an accountant would be helpful. But, as an accountant I also think that a little reading could probably be just as good often times since 90% of the issues I see a generally fairly straight forward.
Agreed, and I've always done my own taxes, despite having investment real estate and businesses in different states. However, I finally hired a CPA just to look at my stuff and ensure I'm doing things right.
I think that was probably the smart decision. Learning on your own and then paying an accountant to review your conclusions is very cost effective and it'll definitely pay-off in the long term. If you ever have a question, feel free to shoot me an email. =)
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 :)