independent contractor?

Question

How do you pay taxes when you're an independent contractor? Should you hire a CPA? Is there a simply formula I could follow to save money?

Thanks to everyone that gave me the advice I really needed! All of you gave the "Best Answers" so I have to leave it up to the voters to decide.

Once again, THANK YOU!!! I really appreciate your time.

Answer 1

When you are an Idnependent Contractor, nothing is withheld from your pay as it would be if you were an employee working for wages.

The IRS requires a "PAY AS YOU GO" appraoch.

Use FORM 1040 ES to detemine how much you must send to the IRS four times a year (almost, but not qutie quarterly)

The due dates are 04/15, 06/15, 09/15 and 01/15 of the following year.

As an Independent Contractor you only pay tax on your NET income. You compute that on a FORM 1040 Schedule C. The net income after expenses is then indicated on the first page of the FORM 1040, Line 12.

You complete the 1040 to compute the INCOME tax due on your net nearnings as an INDEPENDENT CONTRACTOR.

You also must compute and pay Social Security/Medicare tax on your net Independent Contractor earnings. You do this on Schedule SE of the FORM 1040. The tax rate for SS/Medicare is 15.3%. This tax is then indicated of Form 1040, Line 58.

The Estimated Tax payments you have been making are then reported on Line 65. If you've calculated well, there should be little difference between the tax due and the Estimated Tax paid. If there is an underpayment - send a check with your return; if you overpaid, the best course is to have it carried to the next year as a credit.

As for a formula for saving money...Be very meticulous in documenting all of your expenses and plan your finances well.

As to using a CPA...they are expensive, but worth the money (i you follow their advice). If your net income is not large and your expenses are not complicated, you could probably get by by contacting your local business resource center (sometimes associated with a Community Colelge) or look up your local chapter of SCORE (Service Corp of Retired Executives).

I hope this helps

Answer 2

If this is your only source of income and you plan on making more than $8200 (assuming you are married and file MFJ) You should make quarterly estimated tax payments. You can get those forms from the IRS on-line at IRS.gov. Determining how much to pay is a little difficult without more information than you could supply in this format. I would suggest that you drop by the office of a tax professional and ask for some help. Most will get you started down the right road without charging so that you will come back at tax time. People who have W-2 type income and self employment income frequently fall in the trap of not covering the SE portion with estimated tax payments or extra withholding. When you talk to a tax pro ask if they have any worksheets for the type of business or work that you do. Most that have been doing this do and they are very helpful in determining what you can take a deductions from your income. At least get a Form 1040 Schedule C from them or the IRS at the above web site. Don't be afraid to check out the IRS web site. Also ask other people that you may know that are doing the same type business but be careful there are a lot of folks doing it wrong so check with that tax pro before you try something that others say they are doing.

Answer 3

Save 35% of your taxable income and you will be fine when tax season comes around. That is if you making under 150 g's a year.

Answer 4

Estimated quartly payment , go to your local post office to pick up this form.