I'm married,employed fulltime with w-2 & I freelance. What's the best way to file for taxes while saving!

Question

Tax! Full-time and Self-employed.

I tried completing my taxes and it seems like I will owe over 50% of my freelance income in taxes. I'm not sure if this is accurate or if there's anything I'm missing. Keep in mind that I'm married filing jointly and I'm including my 1099 to our W-2's. Any advice would be appreciated.

Answer 1

First, compare you Net take-home amount on your W-2 to your Gross W-2 earnings. What is the percentage that is being withheld by your employer for all purposes (federal, state, city/local, medicare, medicaid, etc). Unless you have a 401(k) or other such retirement plan withholding, the percentage that you will owe on your 1099 income from your freelance activities will be slightly higher than the percentage your employer is withholding because of double FICA on 1099 income. Are the percentages close? if they are, there is your answer.

If they are not then you have to look to whether your W-4 deductions taken are too high. For example, if you do not have dependents and do not own a home then you should be taking the least number of deductions on your W-4. If you are both overestimating your deductions at your employers on your W-4 then you are having too little taxes withheld. If that is the case then the shortfall will be taken at tax-time and it will seem as though it is coming from your 1099 income but it is not.

Also, you should make sure that you are taking the benefit of expense deductions to reduce your NET INCOME from your freelance activities as this is considered a business revenue. You are only taxable on 1099 income after applying expenses to that business revenue. This is done on Schedule C of the1040.

I hope this has been helpful. Good luck.

Answer 2

File Schedule C or C-EZ to account for the freelance income and business expenses. You can deduct any reasonable and necessary expenses incurred in the generation of income.

File Schedule SE if the net profit from the business activity is $400 or more. The SE income is subject to Social Security and Medicare taxes at 15.3% of the net profit from the business activity.

Depending upon your tax bracket and your state's income tax rates it's completely possible for your total tax bite to approach or even exceed 50%.