Independent contract and tax

[Yellow mellow]

So I have been working as an IC for two months now and since taxes are not deducted from my paycheck , I was wondering how much should I leave aside to pay (%) come tax time ? Btw, I'm married if that changes the %. Thanks for any help

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[southerndoc]

You really should get an accountant for your first few years at least.

 

[sweetlenovo88]

So I have been working as an IC for two months now and since taxes are not deducted from my paycheck , I was wondering how much should I leave aside to pay (%) come tax time ? Btw, I'm married if that changes the %. Thanks for any help

buy a basic book about taxes and use turbotax so you can learn and understand to do your own taxes. Read about sole proprietor vs llc vs s-corp. As independent contractor there are FICA taxes, federal income taxes and then possible state income taxes and then unemployment taxes. Just read up on the different taxes and learn about the filing requirements deadlines based on your status with the IRS. Once you learn about those taxes, you can estimate how much you will have to deduct and then your taxable income along with when the taxes are due. That will give you an estimate in how much you need to save up.

 

[Plastikos]

Agree. Get turbotax now and do your "taxes" on it with your projected income and deductions this year, it shouldnt take that long. Then you will have nearly the exact amount you owe (depends on the inputs, GIGO). Finding out self employment tax on the other hand is also simple since you'll be maxing that out, so you pay all of that, and then add on the federal/state.

What I've done is make a spreadsheet in excel with years on the tabs, and each sheet goes jan-dec with columns for income, state tax, fed tax, total tax, SEP, bills, left over for investment.
Basically tells you everything you need to know. Now for the tax calculation I simply take the effective rate from the last year, but this does have to be changed if you have a big jump in income or something. Although after the first year if you make it to like the 33% marginal iirc, the bracket is super wide. Works great for planning and seeing how much you spend, your cash flow and what your investing opportunities are. Used with your budget and other goals and I find its my most used sheet.

 

[ThoracicGuy]

So I have been working as an IC for two months now and since taxes are not deducted from my paycheck , I was wondering how much should I leave aside to pay (%) come tax time ? Btw, I'm married if that changes the %. Thanks for any help

I got the tax documents from the IRS and figured it out from there. They have some example tables you can refer to that are helpful. You have to do quarterly estimated taxes. Don't forget state estimated taxes too unless you are in one of the income tax free states.

 

[Yellow mellow]

Agree. Get turbotax now and do your "taxes" on it with your projected income and deductions this year, it shouldnt take that long. Then you will have nearly the exact amount you owe (depends on the inputs, GIGO). Finding out self employment tax on the other hand is also simple since you'll be maxing that out, so you pay all of that, and then add on the federal/state.

What I've done is make a spreadsheet in excel with years on the tabs, and each sheet goes jan-dec with columns for income, state tax, fed tax, total tax, SEP, bills, left over for investment.
Basically tells you everything you need to know. Now for the tax calculation I simply take the effective rate from the last year, but this does have to be changed if you have a big jump in income or something. Although after the first year if you make it to like the 33% marginal iirc, the bracket is super wide. Works great for planning and seeing how much you spend, your cash flow and what your investing opportunities are. Used with your budget and other goals and I find its my most used sheet.

But because I've worked as a W-2 for most of this year and only two has been as an IC, how would that factor into turbotax calculations ? I'll take look at their website anyways. Thanks everyone

 

[Mman]

So I have been working as an IC for two months now and since taxes are not deducted from my paycheck , I was wondering how much should I leave aside to pay (%) come tax time ? Btw, I'm married if that changes the %. Thanks for any help

You can probably get a reputable accountant to handle this for a few hundred dollars for the year and save yourself the potential liability of screwing it up and having to pay back taxes and penalties.

 

[TexasPhysician]

Until you read up on accounting or get a good accountant, consider saving 33% of your income for taxes.

 

[Yellow mellow]

Until you read up on accounting or get a good accountant, consider saving 33% of your income for taxes.

Thanks, that's what I decided to do.

 

[Plastikos]

Thanks, that's what I decided to do.

Nothing wrong with that. For mixing of income types turbo tax will also take care of that, its very simple.

 

[Mman]

Thanks, that's what I decided to do.

Also need to pay your estimated taxes quarterly and at a realistic amount. You can't just not pay anything all year and then send in a big check at the end. The feds charge interest at a fixed daily rate on whatever amount you had underpaid throughout the year. So if your first quarter check should've been for $20,000 and was only for $5,000, they charge interest on the $15,000 you underpaid each day until you got it paid. Same for every other quarter.

It's not a huge interest rate, but if you underpay enough it kinda adds up.

 

[Yellow mellow]

Also need to pay your estimated taxes quarterly and at a realistic amount. You can't just not pay anything all year and then send in a big check at the end. The feds charge interest at a fixed daily rate on whatever amount you had underpaid throughout the year. So if your first quarter check should've been for $20,000 and was only for $5,000, they charge interest on the $15,000 you underpaid each day until you got it paid. Same for every other quarter.

It's not a huge interest rate, but if you underpay enough it kinda adds up.

I just started as an IC in late September and my last day is next week. The contracting company says they will be sending out my 1099 in 2/16. So I'm assuming that should be fine to do all my tax then right ? Tried calling my accountant for weeks now but he's not in.

 

[Mman]

I just started as an IC in late September and my last day is next week. The contracting company says they will be sending out my 1099 in 2/16. So I'm assuming that should be fine to do all my tax then right ? Tried calling my accountant for weeks now but he's not in.

Estimated taxes need to be paid for the quarter in which income was earned. I am guessing that not having your 1099 isn't a valid excuse for not paying income tax for several months after you earned the income. But I am definitely not an accountant and am just guessing. I'd ask an actual accountant. Yours being unavailable for weeks sounds like more of a reason to find a new accountant.

 

[ThoracicGuy]

I just started as an IC in late September and my last day is next week. The contracting company says they will be sending out my 1099 in 2/16. So I'm assuming that should be fine to do all my tax then right ? Tried calling my accountant for weeks now but he's not in.

You will owe quarterly taxes in January for this. You can do it without the 1099. Look into doing a solo 401k with this money as well...

 

[ResidentSensei]

I agree with most of the above advice. However, I think the first thing to decide is:

"Do I want to do my own taxes?" If yes, then yea, buy turbotax and estimate it while keeping enough money in savings to cover any underestimation. If no, find a reputable CPA to take care of it for you.

In my opinion, the best advice in this whole thread is from ThoracicGuy in regards to a solo 401k. Being an independent contractor you lose the ability to use a 401k or 403b unless you set up your own solo 401k. You should do so as soon as possible, and maximize it as soon as possible.

Hope that helps.

-Sensei

 

[Yellow mellow]

You will owe quarterly taxes in January for this. You can do it without the 1099. Look into doing a solo 401k with this money as well...

I would have never thought about a solo 401k. Thanks , I'll look into that

 

[Neurologo]

Also need to pay your estimated taxes quarterly and at a realistic amount. You can't just not pay anything all year and then send in a big check at the end. The feds charge interest at a fixed daily rate on whatever amount you had underpaid throughout the year. So if your first quarter check should've been for $20,000 and was only for $5,000, they charge interest on the $15,000 you underpaid each day until you got it paid. Same for every other quarter.

It's not a huge interest rate, but if you underpay enough it kinda adds up.

Completely new to 1099 form here too. I've done 3 months of locum tenens between July and Oct this year, before starting my permanent employed job in Nov. When you say we should pay the estimated taxes quarterly, do you mean the payments should start immediately this year or next year after filing the tax? I will certainly have a CPA do my tax at least for this year due to the complicated situation.

 

[Mman]

Completely new to 1099 form here too. I've done 3 months of locum tenens between July and Oct this year, before starting my permanent employed job in Nov. When you say we should pay the estimated taxes quarterly, do you mean the payments should start immediately this year or next year after filing the tax? I will certainly have a CPA do my tax at least for this year due to the complicated situation.

Income earned from June to August has estimated taxes due September 15th. Income from September to December is due January 15th. The estimated quarterly tax dates each year are April 15, June 15, September 15, and January 15. And don't ask me why it is June and not July. I have no idea. I just know the check is due in June.

 

[dpmd]

As long as you have an employed job withholding taxes equal to your tax bill the year prior you aren't going to get hit with penalties for underpaying on your 1099 income. If you change to self employment the easiest way to make sure you pay enough is to pay 90% of your total tax from the year prior (if you use turbo tax it will calculate it for you). Works even if you end up earning more that year. Otherwise you need to keep track of your income and expenses real time and calculate your quarterly taxes that way (better option if you are taking a pay cut though so you don't end up giving the government an interest free loan during the year). So of course anything that brings down your profit will reduce your tax liability (such as a solo 401k and perhaps creative "business expenses"). It isn't that hard to figure out for yourself if you are just willing to spend some time with the irs website, but if you can't or don't want to take the time you will need a good accountant.

 

[Neurologo]

Income earned from June to August has estimated taxes due September 15th. Income from September to December is due January 15th. The estimated quarterly tax dates each year are April 15, June 15, September 15, and January 15. And don't ask me why it is June and not July. I have no idea. I just know the check is due in June.

So the central bank wants us to pay the 1040 tax quarterly instead of annually so that they get the money early and take the potential growth of interest as well. And then they would charge penalty if quarterly estimated tax payments are lower than the actual amount.

 

[Mman]

So the central bank wants us to pay the 1099 tax quarterly instead of annually so that they get the money early and take the potential growth of interest as well.

Huh? When you are a W2 employee your taxes are taken out with every single paycheck. You don't get to wait til April 15th to pay all your taxes from the previous year. With estimated taxes, it's the same thing. You pay it as you go along. Besides, they aren't even getting it "early", it's after you've already earned it so you actually get interest on it for the months or weeks prior to the tax due date (example money earned in October doesn't have an estimated tax payment due til January 15th).

You personally state you were earning money from July through October. The government wouldn't consider it fair if you got to keep it all without paying any tax until April 15th all the while collecting interest on what was due.

 

[Neurologo]

Huh? When you are a W2 employee your taxes are taken out with every single paycheck. You don't get to wait til April 15th to pay all your taxes from the previous year. With estimated taxes, it's the same thing. You pay it as you go along. Besides, they aren't even getting it "early", it's after you've already earned it so you actually get interest on it for the months or weeks prior to the tax due date (example money earned in October doesn't have an estimated tax payment due til January 15th).

You personally state you were earning money from July through October. The government wouldn't consider it fair if you got to keep it all without paying any tax until April 15th all the while collecting interest on what was due.

Is taxation on income earned by labor constitutional? What is the historical background and origin of "federal" income tax in this country? Who gets the income tax money and where is the money going? If you do a quick research on these topics, you will understand my sentiment. Bottom line is, for now little guys like us should pay what they demand to avoid harassment.

 

[Mman]

Is taxation on income earned by labor constitutional? What is the historical background and origin of "federal" income tax in this country? Who gets the income tax money and where is the money going? If you do a quick research on these topics, you will understand my sentiment. Bottom line is, for now little guys like us should pay what they demand to avoid harassment.

Yes, it is legal. There have been some humorous attempts to try to prove it isn't over the years, but it is.

Listen, I pay a ton of taxes and I like paying them as little as anybody, but they are certainly legal and they aren't going away.

Amendment XVI
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.

 

[Plastikos]

Good lord. Yes, it is they are right there in the law. Having a large ideological chip on your shoulder will not benefit you in life or investing, also it gives you an often caricatured view of what really happens and often times a plain ignorant one.

You should use better sources for your information then, as the answer it readily available to anyone not blinded by confirmation bias to only visit sites that say things contrary to the obvious truth.

 

[Neurologo]

Yes, it is legal. There have been some humorous attempts to try to prove it isn't over the years, but it is.

Listen, I pay a ton of taxes and I like paying them as little as anybody, but they are certainly legal and they aren't going away.

Amendment XVI
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.

Good point. Now, check out the following to understand its meaning, if the topic intrigues you. This is a big digression, and I do not wish to further hijack the topic of this forum.

http://usa-the-republic.com/revenue/true_history/Chap5.html

 

[Mman]

Good point. Now, check out the following to understand its meaning, if the topic intrigues you. This is a big digression, and I do not wish to further hijack the topic of this forum.

http://usa-the-republic.com/revenue/true_history/Chap5.html

As I said, there have been some humorous attempts to prove it isn't legal. The federal, executive, and judicial branches of the government all strongly disagree. That link is terribly inaccurate and intentionally misleading.

Like I said, I pay a ton of tax. I wish it weren't legal, but it is.

 

[Plastikos]

They make the laws, therefore it is legal, as is made obvious by many other specific tax laws. That a semi deranged group of people have found it their hobby to cherry pick and then interpret those cherry picked sections with their full biases (and notably short on law expertise) does not make it unlawful. There is almost no idea or rule out there for which a conspiracy group or fringe does not exist that is ever so helpful on educating everyone else about "the truth". Being paranoid is somewhat a universal feature of life.

If you actually believe it isnt lawful, and the rantings of geocities.com style pages are that trustworthy, just dont pay your taxes. Get your day in court and show everyone the truth. That or get over it, and please dont be so blinded and pretentious to act as if we're the "little people", as we most certainly are not. As I alluded to in your other thread, in contrast to your views of decreasing options with income, we only get more.