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Powered by LifeTypeAnd we just discovered that there is yet another Pittsburgh tax we didn't know about, and maybe even a couple different taxes we may or may not owe. I called Pittsburgh to cancel our estimated tax forms that they have continued to mail to us, even though we now live outside of Pittsburgh. In the course of the conversation, he said that we would probably still have to pay the payroll expense tax. I asked what that was, and he said, oh, that's the new tax that replaced the mercantile tax. I said I hadn't heard of either of those before...He is sending me a registration form to sign up to pay more taxes. The payroll expense tax looks very complicated to calculate. As a sole-proprietor, you are only taxes on money that you take out of your business bank account, not counting business expenses, and not counting money earned outside of Pittsburgh. So, any money that I earn working for a company whose office is in Pittsburgh, but I am working from home, doesn't count. However, if I travel to their office, then that income does count. So, we now need two categories in our accounting program for my customers who have offices/homes in Pittsburgh, where one is for when I am at the office, and one is when I am anywhere else. I am not quite sure what to do about my servers, since they live in Pittsburgh, and any time I travel to Pittsburgh to work on the servers, I am never paid to do it, unless you count the monthly hosting costs, which then I guess I have to have 0.068% of the hosting costs taxed at 0.55%, thus costing us 9.4 cents in taxes, and hours of work to calculate that number (I estimated a worst case scenario to quickly calculate that 9 cents).
But, we would only be taxed on that if we actually withdrew the money, so it would be lower than that. I don't know what happens if you leave the money in the bank account until you close the account, or the business closes, or you die or something - I guess you have to calculate the 0.55% of the Pittsburgh income at that time. Seems like an entirely crazy way to calculate tax.
And I have no idea how to calculate the back taxes we owe - trying to figure out what money wasn't withdrawn, and when, seems like an impossible task.
My guess for why they do it this way is so that it isn't considered an "income" tax, but a "payroll" tax, which is obviously, completely different.
Lovely Pittsburgh.
Here's a proposition:
If the money spent on buisness expenses is not taxable, and the amount generated by doing business within Pittsburgh city limits is less than you business expenses, can you call it a wash?
So, you use the Pittsburgh money only for business expenses and then see if there is anything left to calculate. Or does that make it more complicated?
Otherwise, do you calculate the percentage of your income that is spent on business expenses and decrement the Pittsburgh income by that percentage?
Not sure, but good idea. If I have to calculate the expenses that are spent in Pittsburgh, that number would be quite low.
I'll learn more after I get the form, and talk to the tax guy again. I am not sure why he wanted to mail it to me, I think I found the form online, but we'll see.
I think you should move all your business outside city limits, tell them that you did and why, then tell them to pound sand.
Except that two of our biggest customers have offices in Pittsburgh. Leaving them would hurt us more than the City of Pittsburgh.
They like to visit their servers to cuddle? :)
If the amounts are minimal, you could just give them $20/year without stressing the details and if they give you any grief, calculate the precise amount then and probably get a small refund. I doubt they'd bother you again thereafter.
Going forward, I am not too worried about it, and Erica's advice will help some too. I also figure that they wouldn't argue to someone paying the taxes when they are earned versus taken out of the bank account, so we'd be likely to do that I think.
The biggest trouble is that prior to leaving Pittsburgh, all of our income was incurred inside the city limits, and so the number is higher, and so a more significant number is due - I think $300 for this last year (and those of you observant enough can probably calculate Lime Daley's net profit now...)
It will be annoying if they charge us fees for the previous years' unpaid taxes. The self-employment income was smaller, but still something, and I can imagine they could charge outrageous fees for "evading" taxes, (by not realizing that a payroll expenses tax applied to us, even though we don't have a payroll...)
I think only the one customer matters, and since the city only taxes the time I am in Pittsburgh, that won't be an issue for the future. And yes, lots of businesses do move outside of Pittsburgh (there are business parks a half hour north, south, and east of the city).
We just finished filling out the old taxes we owe, and due to the crazy way stuff is calculated, we ended up with more zeroes than would be intuitive.
The grand total, including the extra 1.5% per month penalty is $76.75. And now that I understand how the tax works better, we won't have to pay anything going forward, because we can always say we are not using the income earned in Pittsburgh until 3 months later, in which case, it is no longer taxed.
This took approximately an hour and half on the phone with two different Pittsburgh tax people, and then two hours of Heather and I working together, and another hour or two of me researching what taxes were relevant to us.
I said to someone the other day that I should be able to just send in a check for $100 and call it even, including all possible future payments. Turns out I wasn't that far off, though my estimate took about 15 minutes to calculate.
And considering the time in terms of lost business, the extra $25 you paid would have been a real deal for you. Except that Pittsburgh probably wouldn't have been able to figure out how to account for the extra and would have made you fill out a bunch more forms, probably.
Yes, I laughed when I read the part about having to fill out another form.
Heather says they are mostly just happy with whatever money you send them, (like the state sales tax for online purchases - I figure Heather is the only one who actually pays state sales tax. Lots of people don't even know you are supposed to, and I have been seeing a bunch of articles recently about people mad that now they have to pay sales tax, when they didn't before).
We did find one discrepancy in our returns, so we'll probably need to file an amended return for years back - somehow (well, I know how - it is because gnucash made it difficult to calculate some things for taxes) we reported a little less income than we should have. Now that gnucash is better setup (and we understand things better) it is obvious how much money we made. It isn't off by one customer's payment or anything, so we have no idea where our older amount came from.
I expect Pittsburgh to notice that when they get the latest "business privilege" tax forms - the "privilege" is being able to work in the city I guess, which is why everyone leaves. They've at least reduced the tax from a 1% tax 6 years ago to 0.55% now, though talking to one CFO the other day - he mentioned that amount is still large for a small business - since salaries are their biggest expense. He actually didn't even know about the business privilege tax, because they don't make any income currently, and this tax isn't on sales, just income.
Do you get any benefit for your taxes paid to work in the city? When my father worked in the city of Philadelphia, and paid their wage tax, it entitled us to library cards for the Free Library of Philadelphia even though we lived in the suburbs. For me that was like being handed the keys to the kingdom of heaven. :)
I don't know. We can apparently still keep our Allegheny County library card, and some people get a Butler County library card too, since we are sort of in the middle of the two libraries.
I think Allegheny County charges $1 for the card, and then free to renew. When I looked into a long time ago, I thought it looked like we were going to have to pay $35/year or something to keep our card, but folks here in Butler County say you don't, so I guess we'll see what happens the next time our card expires.
Hrm, working on our taxes this year, and I just discovered the "recovery rebate credit" has a screw-the-self-employed-guy clause. The self-employed tax is added after all of the credits and deductions, etc. and so our "tax" (line 56 of the 1040) is $0 (and the only reason it's not negative, is that you have to tax "extra" child credits on line 66), so the recovery rebate is smaller (only $28) than it should be ($300, I think).
I guess you can say that everyone has already paid the self-employment tax via their employer, but its annoying to be adding deductions to the form, and having the tax not change.
I wonder if there is a way to put any of our deductions from 2008 into 2009?
Also, I just read an article saying that 15% of already filed returns have an incorrect recovery rebate credit applied (line 70), so make sure to do that right (or write RRC on your tax return, and they'll do it for you). If you didn't have any kids in 2008, and already got a check from the government, and didn't have any filing status changes (ie. no longer filing jointly, etc) you probably just put a $0 on line 70.