Free Tax Tips

Posts Tagged ‘self employment tax’

Question: Im negotiating a contratct to work as a 1099 employee. Can I use rent, cable, cell, clothes cost as deductions?

Let’s say the company agrees to pay me 4000 a month gross pay after deductions where do you think my net pay will be? I need to net at least 3500 a month to pay bills, health insurance, car note, and other living expenses. I’m entering new territory and want to be smart about this endeavor.
I wanted both questions answered……

Answer: There is no such thing as a “1099 employee”. A person who receives a 1099 for contract work is a “self-employed” “independent contractor”. An “employee” is a person who must be given a W-2. A 1099 contractor must pay a 15.3% self-employment tax, in addition to ordinary income tax. Only 92.35% of what you make is subject to the self-employment tax, so the self-employment tax really comes to approximately 14% of what you make. When you calculate your income subject to regular income tax, you are allowed to deduct one half of the self-employment tax (or approximately 7% of what you make).

The self-employment tax on $4000 will be more than $500, so your income after taxes would be less than $3500 even if your income tax was zero.

No deduction is allowed for clothes that are suitable for wearing when not working. A deduction is allowed for clothing only in cases of safety gear (for example, special goggles to protect you from chemicals) or uniforms that you are prohibited from wearing except when working.

If you use a portion of your home regularly and exclusively as a home office, you are allowed to deduct a portion of your rent, but not all of it. Otherwise, you are not allowed to deduct any of your rent.

You are not allowed to deduct your car note. If you use your car for business, you are allowed to deduct either (a) the mileage at a rate set by the government or (b) gas, oil, depreciation, etc., multiplied by the fraction of use that was for work.

You are not allowed to deduct cable television that you obtain for pleasure. If you have cable only for a high speed Internet connection that you use only for work (and use dial-up for all personal usage), then a deduction might be allowed for that.

You are allowed to deduct minutes, roaming charges, etc., for business calls from a cell phone and to deduct long distance charges from a regular (landline) phone. You are NOT allowed to deduct any portion of the fixed monthly cost for the first telephone line into your residence. You are not allowed to deduct any charges for personal calls (to or from any phone).

If your health insurance is part of a plan established through your business, then you are allowed to deduct the premiums.

If you establish a retirement plan (such as a SIMPLE plan), you may be able to deduct your retirement plan contributions when calculating your income tax, but not when calculating your self-employment tax.

Greatland Reminds Businesses to Avoid Common 1099 and W-2 Form and Filing Failures in 2010

Greatland, one of the country’s leading providers of W-2 and 1099 products for business, released its top W-2 and 1099 filing “pitfalls” to watch out for this tax season. Greatland compiled this list based on its top customer inquiries. Â

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: Self employment taxes–send quarterly payments to the state OR federal gov’t?

I realized my accountant gave me two different forms (the 1-ES and the 1040-ES). I’ve been sending quarterly payments to my state (using the 1-ES) but NOT the federal government. The checks I’ve already sent have been cashed.

This is the first time I’ve made quarterly payments. Is it correct for me to send them to my state government using the 1-ES form? What about the 1040-ES? If I’m not sending them to the right place, how will I resolve this?

Thanks.

Answer: Self employment tax, for social security and medicare, is just federal. But income tax is federal, and for most states state also, and in many places local also, so you might have to make estimated payments to all three levels of government. They are different taxes. You should be sending in both forms. If so far you haven’t send in the federal ones, send the first three quarter’s amounts with your 3rd qtr form, due Sept 15.

PROVISO Community Calendar

The Proviso Herald welcomes items for the Community Calendar as well as for columns including Business Briefs, Campus News, Community Briefs, School Digest and Newsmakers. Items must be received a minimum of 10 days prior to publication; earlier is better. E-mail to oakpark@pioneerlocal.com; fax to (708) 383-3678; or mail to Pioneer Press, 1010 Lake St., Suite 104, Oak …

Self Employment Income Documentation! Dont Fake/Forge!

Question: How do I pay taxes as a new 1099 employee?

I’m a new 1099 employee. How do I file taxes–quarterly? What’s the first step? I’m new to this. I receive a paycheck every week, but since I’m not full-time, my employer doesn’t take out any taxes. What do I need to do to report and pay taxes? My husband works full-time, and we’ve always filed a joint annual return in the past–how does this affect his filing?

Answer: They aren’t taking taxes out because you are classified as a 1099 employee, not because you are part-time. And depending on your job duties, it might or might not be legal to classify you that way rather than as an employee, but that’s a different topic. See http://www.irs.gov/businesses/small/article/0,,id=99921,00.html for more info on that. Sometimes employers illegally classify employees as independent contractors to avoid paying employer taxes.

When you file your tax return, you’ll fill out a schedule C to show your income and any associated deductible expenses, then a schedule SE to calculate your self-employment tax which is 15.3% of your net income. The numbers from the bottom of those two schedules will then transfer to your 1040.

You can still file a joint return with your husband.

If you expect to owe $1000 or more in taxes, including both income taxes and self-employment taxes, you should file quarterly estimated returns and make payments with the return of the tax you expect to owe for that quarter’s earnings.

Tango Marketing Releases January 2010 Newsletters for Sage MAS 90, Sage Nonprofit Solutions, Sage PFW, and ACT! by Sage

Tango Marketing, LLC today announced the immediate availability of four new issues of its popular Sage product newsletters for: Sage MAS 90 ERP, Sage Nonprofit Solutions, Sage PFW ERP, and ACT! by Sage.

Question: Tax Question – What is a IRS Form W9 or a 1099? (10 points for best/first answer)!!!?

Hey everyone. I am over 18, but have never filled out a IRS Form W 9, which you have to do to enroll in the WCP program to make money on eHow.com. My parents do all the taxes in our house, and I realize this is probably a noob question, but I honestly don’t know what this means…

Can you explain to me what this is all about? Will I be responsible for doing my own taxes now? or?

Answer: A W9 is a request for a tax ID number, which for an individual, is your social security number. This proves you are legal to work the US.

A 1099 is a form companies send out in January each year. It lists how much they paid to their vendors and independent contractors. If they paid over $600 to any non-employee, they are required to send the 1099.

If you receive a 1099 for work performed, you would be considered an independent contractor. This income needs to be claimed on Federal Schedule C. Certain expenses are allowable and can be deducted to arrive at net income. Self-employment tax of 15.3% of net income is paid in addition to income tax. The SE tax is the self-employed person’s social security. And even if you don’t receive a 1099, you are supposed to report the income.

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