I now receive a 1099 instead of a w2..how much do I pay to IRS and how frequently?

Question

Also can I place part of my wages directly into an IRA and how much of that can I deduct yearly? How much can I place into my favorite Charity?

Answer 1

With getting a 1099 you will have to report your income and expenses on a Schedule C on your 1040 tax return. You will have to pay the regular tax on your Schedule C income and also pay self-employment tax. This is equal to the Social Security and Medicare taxes that you have taken out of a W-2 paycheck. Since you are your own employer you pay 100% of the SE tax instead of just half as a W-2 employee, and your employer paying the other half. For 2007 you can put $4,000 into an IRA, $5,000 if you are age 50 or over. The only thing is that an IRA will only reduce your regular tax, and not your SE tax. As far as charitable contributions go, you can give as much as you want in charitable contributions, and it will reduce your regular tax up to 50% of your AGI, but not your SE tax. Also, you have to itemize to get any benefit of charitable deductions. If any of the charitable donations are business related, than you could expense them on your Schedule C as advertising expenses. As far as how much you pay to the IRS and how frequently, it's hard to figure out how much, since you won't know until the year is over how much profit you made. But the IRS says to avoid any penalties on your taxes, you have to have paid by April 15th either 100% of the prior year tax (110% if your income is high enough) or 90% of the current year tax. And of course you have to have the full tax paid by April 15th. As to how often, you would be quarterly, and the due dates are 4/15, 6/15, 9/15, and 1/15 of the following year.

Answer 2

Going from being a W-2 employee to a 1099 self-employed individual can be rough on you in tax terms. When you receive 1099 income, there is no Federal withholding taken out, meaning at the end of the year you won't have any withholding to apply to your taxes owed. In addition, since there are no payroll taxes being paid on the income, you will owe self-employment taxes. For 2007, that is 12.4% of your first $97,500 and 2.9% on all of your wages. This is done in the form of an additional self-employment tax when you file your tax return. You're going to need to try to set aside around 30% - 35% of your income, or pay it in quarterly estimates so you don't get slammed at the end. Have someone run some figures to find out how much you're going to owe at the end of the year. Without an amount, I can't even think about it.

You can make a deductible contribution of $4,000 for this year and $5,000 in 2008 to an IRA. If you're 50 or older, you can contribute an additional $1,000 in the form of a "catch-up contribution". You can also make non-deductible contributions up to either $4,000, or your entire income, whichever is least.

IRA contributions must be made prior to the due date for returns to use on the prior year's returns. So if you make the contribution by 4/15/08 (or whatever the due date is that year), you can use the deduction on your 2007 tax return.

There is no limit on charitable contributions, so be as charitable as you want. :-) However, if you itemize deductions to claim those contributions, sometimes those can be limited. You would be able to carryover the unused contribution amounts into the next year, though.

Hope this helps!

Answer 3

You'll end up paying the same tax overall to the IRS as on a W-2, except that you'll pay both the employee and employer halves of social security and medicare, so that will be 15.3% instead of the 7.65% you'd pay as an employee (then your employer would pay the other half). As far as income taxes, they'll be the same, except there might be expenses you can deduct if you're working on a 1099 that would be more limited on a W-2 - on the 1099 you'll pay income and self-employment taxes on your net.

IRA contribution limit is $4000 per year, or $5000 if you're 50 or older.

Contributing money to a charity will be post-tax. If you itemize on schedule A, you can deduct charitable contributions up to 20% of your income. Over that, the limit depends on what you're donating.

Answer 4

You are supposed to make quarterly estimated payments, you have to estimate how much then settle it on your tax return. Think about what bracket you are probably going to be in then just guess.

You can put everything you want into an IRA there is no annual limit. There is a limit to how much is pre-taxed, $4000 if you are 49 or younger, $5000 if you are 50 or older.

You can give everything you want to charity, there is no limit.