How do you know what amount of taxes to pay on a 1099?

Question

I was w-2 for most of last year. Then in October I quit m job and went out on my own (real estate). I was employed at a salary of $32k/year, and made 27990. After that I recieved about $8k from the profit of a sale of a condo that i did not own or anything, just profit shared from working on it. I know I have my W-2, and I will be given a 1099 for the 8k, but how much do I pay on that 8k? I usually use Turbotax....will it autopoulate, or do I need to consult someone?

Answer 1

Turbo Tax can handle that properly if you answer the questions carefully. Generally you can deduct legitimate business expenses from 1099 income on Schedule C. You also need to pay 15.3% Self Employment tax on the net profits using Schedule SE.

If a significant portion of your income in 2007 will be reported on Form 1099, you should probably make quarterly estimated tax payments using Form 1040ES. Turbo Tax can help you with that as well. If you still have a W2 job, you could increase the withholdings on that job to cover the estimated tax payments that would otherwise be due. Some folks find that that is preferable to coming up with the estimated payments 4 times a year.

Answer 2

You will probably need to file a schedule C to report the income from the 1099 as well as any expenses you incurred from the time you quit your job till the end of December. The difference between the two is your taxable income from the 8K, which is added to your gross wages from your W-2 and is what you will pay taxes on.

Answer 3

You will use a Schedule C on your 1040 long form to account for your self-employment income (the $8K). If you had no expenses, you'll owe roughly 15% of it for self-employement taxes, and then about 15% for income tax, depending on your total income for the year (which determines your tax bracket).

Don't forget to check with your state and city to see if taxes apply there as well. When I earn money on the side - I try to put half of it aside in a separate bank account for taxes just to make sure. Then it's there if I need it to pay - and if I underestimated and don't owe all of it at the end of the year, I give myself the "refund" of the money that was put aside there.