tax question?

Question

Hi,


Sorry to bother you - I'm new to this. I saw that you've answered a lot of questions about 1099s and 1040s on here and thought it couldn't hurt to ask.

I've recently been hired as a freelancer (march 9th). My boss said I'd have to file a 1099. Then I read some things on here and you mentioned a 1040 quarterly tax form. Now, I haven't worked in a while and I am my husband's dependent. Do I file with him or separately?I think I'll make 25k a year with this new job, but a 1099 means 15% gets taken out of it? Geez. Is that at the end of the year or should I file a quarterly 1040? I'm so confused, but I want to make sure I do this right. Thanks so much for your time and help.

You seem so knowledgeable!

Thanks again in advance.

Answer 1

OK, let's clear up a few things first.

First, you are NOT your husband's dependent. You can file a joint return and will usually pay the least tax by doing so. The only way that your husband could claim you as a dependent is if he filed a separate return and you had zero income for the entire year. It would be extremely unusual to file a return that way and would normally result in a higher total tax liability.

Second, you do not file Form 1099. The company that is paying you must prepare a Form 1099 if they pay you $600 or more in 2007. They'll send you a copy and also send a copy to the IRS. You'll use that information in preparing your 2007 tax return. However, you should NOT depend upon the company to send that Form 1099! Not all companies are on the ball with that requirement. You are required by law to keep accurate and complete financial records of all business income and expenses. Doing so will also protect you if the company sends a Form 1099 with the wrong information on it. Unscrupulous comanies have been known to do that and YOUR accurate financial records will protect you from that.

On to your question. You are self-employed. In order to make sure that enough taxes are paid in for 2006, you probably will need to make quarterly estimated tax payments using Form 1040ES. Here's a link to the 2007 package: http://www.irs.gov/pub/irs-pdf/f1040es.pdf Fill in the worksheet to determine how much you will need to pay in.

When you file your 2007 return next year, you'll need to attach Schedule C or C-EZ to account for your income and business expenses from the business activity. That amount will be transferred to the appropriate line on Form 1040.

You'll also need to file Schedule SE to calculate the Self-Employment tax on the net profit from the business activity. The rate for that is a flat 15.3%. You'll transfer that amount to the appropriate line on Form 1040.

You'll also list the estimated payments made on Form 1040, along with any withholdings from any Forms W-2 that you and your husband received. Then you'll calculate any refund or tax due. Finally, you'll grab the 2008 Form 1040ES package and calculate your estimated taxes and repeat the whole process over again for 2008.

Tax tip: If your 2006 return shows a refund due, have the refund applied to your 2007 tax liability. List that on the worksheet for the 1040ES package. It will reduce the estimated payments you need to make throughout 2007.

Answer 2

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