Free Tax Tips

Posts Tagged ‘self employment 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: 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: Need some infor on 1099 Independent contractor?

I am a 1099 Independent Contractor and my employer is requiring me to use a time clock, and if I am not here to clock out he write in a time. Can he require me to use a time clock? Can he write in times on my time card? I could be wrong, but I think this is a problem for him, as he does not have to withhold taxes or pay unemployment but wants to treat me as an employee. I would really appreciate any input.

Answer: as an independent contractor, you are considered self employed, and therefore you file taxes as though you were running a business. Your business name is simply your name, and your business ID number is just your social security number. Basically, YOU are the business. It doesn’t matter that you don’t have a business license, that’s not an issue, but for income tax purposes, you have to file as though you were running a business.
If your net profits were more than $400, you also need to include schedule SE. This schedule computes your self employment tax. Its 15.3% of your net profits. This is the money you would have had taken out of your paycheck (plus your employer’s contribution) for social security if you had a regular job. The total self employment taxes will go onto your 1040 as taxes owed.

4 tough questions point to concerns about NH business

2010 is upon us, I’ve recently turned 50, and as the British rock band Sparks sang in 1979, I’ve got angst in my pants. Let’s just say that so far this year, I’m in a contemplative spirit. And when I’m in a contemplative spirit, I’m usually grouchy, so I tend to think about questions and issues that bug me. I thought I might share a few of them with you in this, my first column of the year.

Whoifwhat: Contractors cheat on taxes, Illegals

Question: 1099 or W2 please help?

my ex husband stared a business in January of last year. I helped him until we slpit up over it in May. He paid me every week just like an employee, but he didnt take taxes out on me, it was a company check hand written. He said he can give me a W2 for this years takes since we are split up and I am filling head of household. He he would be liable for any taxes that are owed on giving me a w2. But he didnt withhold any taxes. SOOOOOO my big question is W2 or 1099. I was not a INDEPENDANT CONTRACTOR, he was my boss, I didnt what he told me to do and ran his office. If anyone has a amswer please tell me.
He has a EIN number for the IRS but he dont have one for the state.

Answer: I have actually seen this happen before.
He is responsible for taking the taxes out of your check, but you are responsible for paying any taxes. At the most, your social security should have been paid. If it wasn’t, you get a 1099.
Federal and State are all yours. He is not required to pay a dime of that. One option would be to turn him into the IRS, they would fine him and possibly make him pay your FICA, but you would end up paying any taxes owed for your income.
What was the plan when he started paying you? If you ran his office, then you should have known he was not taking any taxes out of your paycheck. It sounds like he was going to write your pay off as misc. labor.
If it was me, I would go ahead and take a 1099, so no one gets in trouble. Let him pay the tax due. Depending on what you made, your HOH status, and dependents, you may not owe as much.
With any luck, you will qualify for the EIC and Additional Child Tax Credit, either of these would offset Self-Employment Taxes.
Another option, file jointly. Legally you can still do this for the tax year. No one gets in trouble, and there are business deductions to take to offset any taxes owed.
Take this as a lesson learned, if you do not have business expenses for self-employment, make darn sure the proper taxes are taken out of your check. No matter who writes it!
I am sorry you are put in this position. Good Luck with it.

2010 Payroll Software Adds New Features For Small Businesses, Accountants and Payroll Service Providers

Payroll Mate, the affordable payroll software by Real Business Solutions, adds new features for Businesses doing Payroll in 2010. The popular payroll software now includes the ability to export payroll data to general ledger and Quicken software.