Worked as an independent contractor last year but only got paid this year. How do I deal with taxes?

Question

I worked near the end of last year on a one-time project and got paid for it in January of this year. I have a few tax-related questions for anyone who can help:

(1) Can I deal with all income and expenses together in my 2007 return (to be filed next year) because I only received pay in a check with this year's date? It seems illogical (I know that sounds Spock-like) to have expenses on this year's form and income on next year's when it all relates to the same work.

(2) Can I claim the taxes with my 2007 form without making quarterly payments for withholding (or whatever other taxes come from being an independent consultant) and, if so, how would I do it?

If necessary, I guess I could make quarterly payments, but this really was a one-time project and I have no anticipation of any such work this year. I have a full-time job, so I could have excess taxes taken out now, if that would help me to avoid quarterly payments.

Thank you for your help.

Answer 1

You could put the expenses and income on the 2006 return and use accrual accounting for the independent contractor work. See if that isn't an option for you.

If you use cash accounting you realize the expenses in 2006 and the income in 2007, a mess. It would not be totally accurate to put both expenses and income into 2007, but if you did and your return was examined I don't believe you would be in trouble as long as the income and expenses were accurate.

You do not have to pay quarterly estimated taxes in 2007 as long as you adjust your withholding on your wages to pay the tax due from the consultant work.

Answer 2

You file taxes for the year in which the income was received, not in which it was earned...so yes, you'll be filing it on your 2007 return.

I'm not too sure on whether you need to file quarterly tax payments...Since it was a one-time thing and no longer is your primary source of income, I would think that you can file it with your total income next year...but I'd check with a tax professional on that to be certain.

If you haven't filed your taxes this year yet, and have any refund due, you can apply that amount toward next year's tax bill.

More info is available at www.irs.gov, and they have regional help lines and offices where you can go in in person to talk directly to the irs to figure it out specifically, or places like H&R Block or Jackson Hewitt should be able to give you better answers also.

Good luck!

Answer 3

it's income to you when paid. that happens often, i.e. a payroll for the last week of the year gets paid in the following year and is income in the following year. you should increase your tax withholding via payroll to save you from making quarterly payments, but the amount would depend on the amount of the 1099 income and your tax bracket. and you have to factor in self-employment taxes.