Free Tax Tips

Posts Tagged ‘estimated taxes’

Question: $2,000 tax on $8,000 income?!?

I recently became a self-employed Pilates instructor (because there is no other kind), and am preparing my self-employment tax forms. I have estimated that I will make $8,000 for the second half of this year. And after calculating the honest way, my taxes owed on this $8,000 will be $2,000! I’m a full time student, so I can’t build up more hours or a business proper at this point. So, what the heck? Is this an egregious mistake on my part or does the IRS expect independent contractors to lie out to wazoo about their business expenses?

Answer: That will depend upon any other income that you have.

You’ll owe about $1,128 in Self-Employment taxes on $8,000 profit. If that’s your only income for the year you won’t owe any income tax unless you can be claimed as a dependent. (If you can be, tack on about $260 for Federal income tax.) If you have other income for the year, the $8,000 will be added to it to figure your income tax so it is entirely possible that you will owe a total of around $2k on it.

Forget about “lying out the wazoo” on your expenses. Small businesses are the MOST likely to be audited. Anything you claim that you don’t have proof of payment for will be disallowed. You’ll owe the tax, plus whatever penalties and interest are due on top of it.

Since you’re going to owe more than $1,000 on it, you do need to make estimated tax payments to avoid penalties and interest for underpayment of estimated taxes. Today was the due date for the 3rd quarterly payment so unless you’ve already been earning money at it for the past couple of months you don’t need to make any payments until Jan 15, 2009. So set aside enough to cover your tax bill and either make the Jan 15th payment, or file and pay in full by Jan 31st to avoid any extra penalties and interest.

Recapping final months of ‘09 news

The Enterprise today completes its annual week-by-week look back at the most significant news stories of 2009 with capsule summaries from every issue in September, October, November and December. The first eight months of 2009 were recapped in the final t read more

Bookkeeping for the Self Employed Tracks Income & Expenses Automatically and Free

Question: I am converting from 1099 to W2, is there a pay decrease I should expect?

Answer: Not a pay decrease, but with a W-2 employee FICA & Medicare, Federal withholding & State taxes (if any) will come out of your pay.. With a 1099 you are considered a consultant/self employed/contractor and you are responsible for sending the estimated taxes to the IRS on your own..
The end effect should be the same, just how the taxes are paid is the difference.. Either through withholding or you make them on your own..

Question: IRS rules say I am an employee, no deductions from my check, do I file 1040-C?

My employer does not deduct anything from my pay check. I will receive a 1099-mis with pay in box 7. Do I file 1040-C and 1040-SE, and can I contribute to a standard IRA? IRS rules say I am not an independent contractor. My employer’s clients direct my actions.

Answer: You are self employed or independent contractor. You will report your income and expenses on schedule C or C-EZ (Form 1040). This income is subject to SE tax at 15.3%. Read about self employed (or independent contractor) tax filing and payment of estimated taxes: http://taxipay.blogspot.com/2008/04/tax-filing-by-self-employed-sole.html

The ‘Pants on the Ground!’ video contest

We decided it’s time for our first ever “Idol Confessions” video contest, based on General Larry Platt’s catchy tune, “Pants on the Ground!”

Self Employment Tax Tips : Tax Tips for Temp Employees

Question: I have started my job as a contractor on 1099…where do I pay taxes?

I just started my job as a contractor in san Jose, CA. The mid client said they will pay me on 1099. Can anyone tell me how do I get taxes deducted then? I know they have to be paid monthly or quarterly. Shud I go to a Tax consultant right away? Also is 1099 better or W2.

Answer: You will file your return between January and April 15, 2008 for 2007. You’ll put your 1099 income and any allowable associated expenses on a schedule C or C-EZ, and use a schedule SE to figure your self-employment tax (for social security and medicare). The numbers from the bottom of the two schedules will transfer to a form 1040. Any other income you had will also go on the 1040, and you’ll figure your total tax there.

They won’t deduct taxes from you. Quarterly, you’ll file a form 1040ES and send it in with your estimated taxes on the income you made that quarter. You’ll also need to file an estimated CA return quarterly.

A 1099 is better for the company than a W-2, because they don’t pay employer taxes. You’ll pay twice the amount for social security and medicare as you would on a W-2, and won’t be covered by workers comp or for unemployment. Legally, the company can’t just decide to pay you on a 1099 – it depends on the work you are doing and your working conditions. Some companies illegally classify workers as contractors rather than employees to get out of paying the employer taxes.

City League highlight sheet scores through Jan. 7

Pee Wee/Bumper (1/2): Anthony Kimwaki 177-91, Joshua Sutfin 159-81, Allen Noga 137-74, Kalin Worthington 124-66; Adina Schultz 100-56.

Railfanning The BNSF Chillicothe Subdivision, Lockport, IL. 6-23-09.