Self Employed - Need tax info ~?

Question

I just made a career change and am now an independent contractor. I've created an account in which I deposit 35% of my income for taxes, but I don't know how often to report, or even how to report my income. Anyone have helpful hints? Appreciate it!

Elsa

Answer 1

Hi Elsa! When you are earning income without any withholding, the IRS (and the state) require that you pay in quarterly installments, due 4/15, 6/15, 9/15 and 1/15. If this is a business that started in 2007, that means that you'll need to make an estimated payment for this year by 4/15 (actually, 4/17 because of some DC holiday).

That said, your income will be reported on Schedule C. You can pull up the form on http://www.irs.gov and take a look at it. It's basically like a mini-income statement. You'll be listing all of your income, expenses, inventory information, etc.

Helpful hints? One: keep all business activity segregated from your personal financial information. This means separate checking account, separate phone, and if possible, separate vehicle. Two: find yourself an accountant. She can help you start up your business on the right foot, from a tax standpoint.

Good luck!

Answer 2

First, I congratulate you and/or your advisor for setting up the 35% "self-withholding". I hope it's enough. A lot of people forget that as a contractor you are not just going to pay income tax you will be paying another 15% for Social security and medicare. You will be reporting your income and your expenses that are DIRECTLY related to making that income, on Schedule C. Keep good records of any expenses including possibly home office, mileage, cell phones, equipment, etc.

Answer 3

Your income will not be reported until next year taxes using the Schedule C

But if you think you will end up owing a bunch for social security and federal, you can make quarterly tax deposits to the IRS.

If I remember correctly, your first year paying in they won't penalize you for underpayment, but just to be sure you might want to deposit about 10% of your gross each quarter.

The deadline for these deposits are April 15, July 15, October 15 and next January 15.

See this link to the info you need:

http://www.irs.gov/faqs/faq-kw167.html

edit** and although SuzeY states she is a CPA, she needs to adjust her dates of the estimated tax payments. They are due by the 15th day FOLLOWING the end of the quarter, NOT on the 15th day of the last month of the quarter.

Answer 4

You still file a return annually like everybody else. So, you still "report" your income only once a year.

You should be making quarterly estimated payments. There is more information at IRS.gov. The first payment for 2007 is due 4/15.

Only one piece of advice: Keep track of your income and expenses precisely. Use a spreadsheet at home to track everything. You can download a "Schedule C" from the IRS and see what the most common items are.

Answer 5

How often you have to report and or make payments will depend upon the amount of income you are making.
My husband is self-employed and we are required to pay estimated taxes quarterly.
Check out the following web sites. You will find most of your questions answered there.
Go to www.irs.gov
click the business tab, and on the left you will see business topics. There is sub category "starting a business". But be sure to check out the entire web site it is full of valuable information.
You can also go to www.irs.com.
What ever you do, (and I paid dearly to learn this information, I mean in the $1000.00s so listen carefully.) do not pay your estimated taxes late.

Answer 6

Its best and the easiest to do quarterly reporting. I leave this up to my payroll specialist, which it is included. She also does our quarterly employment security reporting and payment. If you don't have employees, then I believe you do not have to worry about the second. I gather the couple thousands of receipts and start separating into catagories. I enter the amounts into the computer and add total. Our CPA sends us a packet to enter all the numbers and add additional info ect... She takes care of the rest. It costs us $200-300 to use our CPA, but boy is it worth it!!

Answer 7

You'll file quarterly on form 1040ES, sending in your estimated amount of taxes that will be due at the end of the year for whatever income you had in that quarter. Here's a link to more info on estimated taxes: http://www.irs.gov/businesses/small/article/0,,id=110413,00.html

Answer 8

I'm self-employed as an independent contractor as well. I only report my earnings at the end of the year (at tax time). Although, I am an IC, I still receive a W2 from the company I contract with, you should receive one as well.

If you don't receive W2's then I would consider using bank statements as proof of earnings.