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| 1099 position - what taxes am I responsible for? Posted by TDsngumbo I'm considering taking a 1099 position but I'm completely lost when it comes to how I pay taxes on my income!  on 5/1 at 9:11 am1st, what taxes will I be responsible for? 2nd, how do I make quarterly tax payments to the IRS? Do I need to get a CPA or can I set this up through TurboTax or something? 3rd, what are the pros and cons of a 1099 position? TIA!!! Reply • Back to Top |
| taxes are over rated Reply • Back to Top |
| Better find out an stick to it. I am paying the price in back taxes due to a former 1099 position. My first call would be to a CPA. Reply • Back to Top |
quote: More money up front, but you pay more in tax percentage. But you can deduct more Reply • Back to Top |
quote: eta: I RA'd to get this moved to the money board. You should get some good answers over there  This post was edited on 5/1 at 9:19 am Reply • Back to Top |
| you'll get better answers on the money board. and talk to a cpa pros - easier to make deductions on your expenses cons - you are now paying all of the payroll taxes Reply • Back to Top |
| contact a cpa Reply • Back to Top |
| You will have to pay the employee and employer portion of Social Security and Medicare, as well as your income taxes. Estimated taxes are not difficult to pay (Form 1040ES), but you need to compute the amount. If you can do your own tax return, you can make the estimated tax payment. Just be sure the amount they are paying makes up for the amount you have to pay for the employer portion of your SS and Medicare. If you have deductible work expenses, it does make that part better. Reply • Back to Top |
| You're responsible for both sides of payroll taxes... Historically 15.3 but more like 12.9 right now and of course income taxes. You make quarterly payments using a 1040-es. Its an estimate the first hear and based in prior years the next. It sucks, takes discipline and will increase any hate you have for the government. Reply • Back to Top |
| 1. You will be responsible for income taxes and employee share of social security and Medicare taxes 2. Here is a link for Federal estimated payment vouchers and instructions: 1040-ES 3. Being an independent contractor should give you much more flexibility. You will have more money up front (because nothing is being withheld), so make sure you put some away for the taxes you will owe. This catches up with a lot of people. You will also be able to deduct all expenses related to your job on your Schedule C. Make sure you keep a detailed log of all your vehicle mileage for work. This will probably be your biggest deduction. Also keep track of any other expenses (business meals, supplies, advertising, professional fees, etc.). Reply • Back to Top |
quote:Self employment tax and income tax quote:You can do it yourself and TurboTax and most money management software will walk you through it. ETA: Using a cpa is often wise to help you figure out how to track and deduct all allowable business expenses. quote:Pros, you can deduct business expenses to lower your tax burden. Cons, potentially higher tax and more work to make sure taxes are paid. This post was edited on 5/1 at 9:23 am Reply • Back to Top |
quote:anyone you'd recommend? Reply • Back to Top |
quote: He just got information from a CPA  Reply • Back to Top |
| Thanks everyone. I appreciate the upfront answers! Tried googling it and got more confused than I was before so this helped lol! Reply • Back to Top |
| you'll have to pay a higher percentage of "self-employment" tax; however, you can deduct your expenses before getting the the amount you have to pay tax on Reply • Back to Top |
| As a CPA you pretty much have all of the information you need in this thread. If you're leaving a W2 job for this make sure you take the self employment tax into account to make sure it actually is a better deal for you. Plus don't forget about any benefits you might be receiving now with health insurance and 401k probably being the biggest. You are now your own boss so these are now your responsibility. Reply • Back to Top |
| If you agree to become an independent contractor, your income will be reported on a 1099-Misc instead of a Form W-2. This means that you have to complete a Schedule C and Schedule SE to report your income and compute your federal taxes. A 1099-Misc also means that you are considered to be self employed and consequently, are both the employee and the employer. This, in turn, means that you will be paying SE taxes, which are just another way of saying "medicare and social security taxes". As a 1099-Misc wage earner, you will be paying 15.3% of your "profit" after expenses to SE taxes. A W-2 "employee" only pays 7.65% of their total income in social security and medicare taxes. (Currently this 15.3% total has been reduced to 13.3%,but that will probably change since Congress has not extended this tax cut, to the best of my knowledge. You will need to report your legal expenses on a Scedule C and subtract those expenses from your total 1099-Misc reported income to determine your "profit". You could potentially be giving up your worker's compensation rights by being your own employer. You must also keep very detailed and accurate records to determine and report your expenses. And, if you do not prepare your own tax return, your tax prep fee will be significantly higher due to the necessity of having to fill out a Schedule C and a Schedule SE. There are some advantages to becoming an independent contractor, but there are definite disadvantages as well. In my experiences, most employers welcome a decision by their employees to become a 1099-Misc "employee". (That saves the former "employer" their 7.65% contribution to social security and medicare.) However, keep in mind that if the employer substantially directs and supervises your "work", IRS regulations prevent you from being an independent contractor (1099-Misc worker). I would not elect to change my status if I were you, unless you want to automatically set back a bare minimum 25 cents of every dollar you earn just to pay your federal income tax, social security tax and medicare tax. And this is not even taking into consideration the money you will need to set aside for potential state income taxes. Reply • Back to Top |
quote:15.3% up to the FICA cap yes. 2.9% after that for the Medicare portion. Reply • Back to Top |
quote: I've never met one I liked Reply • Back to Top |
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