Plain-English Tax Explainer

Turns a preparer's return summary or bookkeeping notes into a clear, friendly explanation a client can follow.

Tax prep or bookkeepingProfessional Services✓ Checkedv1.0

Before and after

BEFORE · what the owner typed

need to explain victor pages return to him. he emailed: 'why do i owe so much this year, last year i owed nothing. whats this self employment tax thing. and does my pilot count as a write off' Client: Victor Page, tax year just filed, handyman, self employed this year. Last year he had a W-2 job most of the year with tax withheld, thats why he owed nothing. Income (receipts) 48,200 Expenses: supplies 9,300, vehicle 4,020 (from his mileage log, 6,000 business miles, 2011 Honda Pilot, white), phone 840, insurance 1,260 Net profit 32,780 SE tax 4,632 Income tax 2,905 Total tax 7,537 He paid 3,200 in estimated payments during the year (2 x 1,600) Owe 4,337 We recommend he make quarterly estimated payments going forward, keep up the mileage log, and open a separate bank account for the business. Sign off from Vera Norman, Ivygate Tax Service, 340 Greengate St, Crestcroft, 262-555-0102.

AFTER · what the skill produced

Hi Victor,

Thanks for your questions. Here is the short version: for this tax year you owe $4,337. Below I answer each of your questions and show how we got there.

Why do I owe so much this year when I owed nothing last year?
Last year you had a W-2 job most of the year, and your employer took tax out of every paycheck. This year you worked for yourself, so no one was taking tax out for you. Your business earned a profit of $32,780, and tax is due on that profit. You did pay $3,200 during the year in two estimated payments of $1,600 each, and that helped, but it was less than the total tax.

What is self-employment tax?
Self-employment tax is a separate tax that applies to your business profit, and for you it is $4,632. It is separate from your income tax, which is $2,905. If you would like a full explanation of how it is figured, please ask us and we will walk you through it.

Does my Pilot count as a write-off?
Yes, your 2011 Honda Pilot is included. Because you kept a mileage log showing 6,000 business miles, we were able to claim $4,020 for vehicle use. That lowered your profit and your tax. We cannot promise how any deduction will be treated if a tax agency ever asks about it, which is one more reason the log matters.

How the numbers add up

Money your business took in: $48,200
Supplies: $9,300
Vehicle: $4,020
Phone: $840
Insurance: $1,260
Total business expenses: $15,420
Profit (income minus expenses): $32,780
Self-employment tax: $4,632
Income tax: $2,905
Total tax: $7,537
Estimated payments you already made: $3,200
Amount you owe: $4,337

What we recommend

Make quarterly estimated payments going forward. Since no tax is being withheld for you now, we recommend paying during the year so a balance like this one does not build up.
Keep up your mileage log. It is the reason your vehicle deduction is supported.
Open a separate bank account for the business. It keeps your income and expenses clear and makes next year's return easier.

What we need from you
Please contact us about how and when to pay the $4,337 balance and how to set up your estimated payments.

Vera Norman
Ivygate Tax Service
340 Greengate St, Crestcroft
262-555-0102

Questions for the owner

What is the due date for the $4,337 balance, and how can Victor pay it?
What amount and dates do you recommend for his quarterly estimated payments?

What it does

Turns a preparer's return summary or bookkeeping notes into a clear, friendly explanation a client can follow. It answers the client's own questions, explains what each number means, and says what the client needs to do next.

Use it when: Use when a tax prep or bookkeeping office needs to explain a tax return, a balance owed, a refund, or a set of bookkeeping numbers to a client in plain English, such as: explain this return to the client, why do they owe this much, or write up what these numbers mean.