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TDsngumbo 
LSU Fan
Member since Oct 2011
1924 posts
| 1099 tax questions (Posted on 5/9/12 at 12:45 pm)
Here I am again with some more questions about 1099 tax issues.
I was offered a position a couple weeks ago as a 1099 employee but I turned it down due to taxes. Now, I'm being offered another 1099 position with greater pay. This position will pay better which would in theory make up for the extra taxes.
My question is this:
Is it safe to assume that about 45%-50% of my gros income would go to federal and Louisiana state taxes?
The pay could easily go up to around 60,000-90,000/year or more gros.
Please help me out!
Thanks!
This post was edited on 5/9 at 12:47 pm
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TROLA
LSU Fan
BATON ROUGE
Member since Apr 2004
5210 posts
| re: 1099 tax questions (Posted on 5/9/12 at 1:03 pm to TDsngumbo)
The only additional tax is 7.65% which is deductible but you can also can write off much more with ease as long it relates to your job. 1099 jobs require more tax discipline and record keeping but can be more profitable.
.. assuming your 1099 stated 65k.. You would pay close to 8500 in SS/Med.. depending on deductions your fed rate could be up to 10k or so.. state would be 2-3k.. These are all rough estimates of course.
Thats a total tax of 20k which would be a rate around 35%.. I would say that is on the high end.
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TDsngumbo
LSU Fan
Member since Oct 2011
1924 posts
| re: 1099 tax questions (Posted on 5/9/12 at 1:51 pm to TROLA)
So 45%-50% is too high? I'm just trying to figure out how much of each check I should put aside for taxes.
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BFIV
Member since Apr 2012
1008 posts
 Online
| re: 1099 tax questions (Posted on 5/9/12 at 2:41 pm to TDsngumbo)
So 45%-50% is too high?
Yes, 45-50% is too high, imho. I agree with TROLA. 35% is a high tax rate. But, it's all relative. I could afford to pay 35% on a million dollars much easier than I could afford to pay 35% on 65K dollars. Think about EVERYTHING you are giving up as discussed in the previous thread by accepting a 1099 position. Hope you have AFLAC! Who's gonna pay your bills if you get sick? Where is the money gonna come from if you get hurt on the job? Are you going to be able to afford your own exclusive retirement plan? Are you going to be able to afford and assume 100% of your health insurance costs? Can you afford to lose the money by taking unpaid vacation time? I just can't see the up side to being a 1099 employee unless you are really earning BIG bucks. Even then you need to discipline yourself to make sound spending and savings decisions. Just my opinion, though!
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TDsngumbo
LSU Fan
Member since Oct 2011
1924 posts
| re: 1099 tax questions (Posted on 5/9/12 at 3:28 pm to BFIV)
Well my wife and I have a decent amount saved in a savings account so if I get hurt, we can stand to go a few months at least without pay. A disability policy is something I'm looking into also. I already have my own retirement plan since the job I'm coming from didn't have one so I had that set up on my own. My wife is a teacher with the school system so our health insurance is with her job, which is very good and affordable insurance. This position will pay a good bit more than I'm used to making already so my plan is to just simply save the extra income. We were getting by just fine before so that extra income is going into savings/retirement.
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bamaphan13
Member since Jan 2011
98 posts
| re: 1099 tax questions (Posted on 5/9/12 at 3:29 pm to BFIV)
I was 1099 for 5 yrs and it sucked. I put away 25-30% per paycheck and paid my quarterlies all the time. Every April 15 it was never enough and I always had to kick in around 5k more.
Only folks I knew who enjoyed the 1099 played it pretty fast and loose with the deductions.
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iknowmorethanyou
LSU Fan
Paydirt
Member since Jul 2007
3827 posts
| re: 1099 tax questions (Posted on 5/9/12 at 3:47 pm to bamaphan13)
quote:
1099 fast and loose with the deductions
Is there any other way?
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TROLA
LSU Fan
BATON ROUGE
Member since Apr 2004
5210 posts
| re: 1099 tax questions (Posted on 5/9/12 at 4:02 pm to TDsngumbo)
quote:
So 45%-50% is too high? I'm just trying to figure out how much of each check I should put aside for taxes.
Without knowing your overall tax position, its hard to say. 45-50% seems high based on the income you are loosely putting out. But always hold back and pay more in the first year... IMO somewhere around 5% more than you calculate. IF you have a rough idea of income,expenses and personal deductions you can easily figure out your expected tax burden.
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BFIV
Member since Apr 2012
1008 posts
Online
| re: 1099 tax questions (Posted on 5/9/12 at 4:05 pm to bamaphan13)
It is no secret that Uncle Sam is broke. Consequently, the IRS is cracking down on those who have been playing it "pretty fast and loose with the deductions." The IRS is now focusing a great deal of audit attention to EIC (Earned Income Credit), self employment income without a supporting 1099-MISC, 1099-MISC claimed expenses, and employee mileage. Better have your ducks in a row and all supporting documentation.
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TDsngumbo
LSU Fan
Member since Oct 2011
1924 posts
| re: 1099 tax questions (Posted on 5/9/12 at 4:31 pm to BFIV)
How would I correctly document mileage for the IRS to accept it?
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iknowmorethanyou
LSU Fan
Paydirt
Member since Jul 2007
3827 posts
| re: 1099 tax questions (Posted on 5/9/12 at 4:51 pm to TDsngumbo)
1 subject notebook and an ink pen.
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BFIV
Member since Apr 2012
1008 posts
Online
| re: 1099 tax questions (Posted on 5/9/12 at 5:13 pm to TDsngumbo)
quote:
How would I correctly document mileage for the IRS to accept it?
Odometer readings, odometer readings from your car title when you first bought it, oil change recorded mileage, or your daily mileage log. IRS rules state that your mileage and expense records must be contemporaneous, e.g., you record these expenses as they occur.
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LSUGUMBO 
New Orleans Saints Fan
Shreveport, LA
Member since Sep 2005
3809 posts
| re: 1099 tax questions (Posted on 5/9/12 at 5:25 pm to TROLA)
quote:
The only additional tax is 7.65% which is deductible but you can also can write off much more with ease as long it relates to your job. 1099 jobs require more tax discipline and record keeping but can be more profitable.
.. assuming your 1099 stated 65k.. You would pay close to 8500 in SS/Med.. depending on deductions your fed rate could be up to 10k or so.. state would be 2-3k.. These are all rough estimates of course.
Thats a total tax of 20k which would be a rate around 35%.. I would say that is on the high end.
If you live in LA, add another 6% for state taxes. My wife and I have been self-employed for 6 years, and we generally save 40% from every paycheck.
Depending on writeoffs, we may over save by $5-6,000, but we just look at it as a savings account for health savings contributions.
You definitely don't want to be on the losing end of an April 15 deadline and have to come up with thousands to pay Uncle Sam.
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BFIV
Member since Apr 2012
1008 posts
Online
| re: 1099 tax questions (Posted on 5/9/12 at 5:40 pm to LSUGUMBO)
quote:
You definitely don't want to be on the losing end of an April 15 deadline and have to come up with thousands to pay Uncle Sam.
Exactly. I had a client about 5 years ago who had been paid her severance pay on a 1099-MISC. Over 100K dollars. Up to that time, she had been paid with a W-2. Told her this wasn't legal per IRS regs and rules, but her former employer wouldn't budge for her and tax time was immediate, plus she didn't want to fight it because her former employer was a "good friend". Yeah, she took a big hit on taxes. Imagine having practically no expenses to deduct on 100K, you've already cashed the severance check, and now you discover the income tax and SE tax implications. Fortunately, she had enough left to pay Uncle Sam, but just barely.
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CoolHand 
USA Fan
Member since Dec 2011
1454 posts
| re: 1099 tax questions (Posted on 5/9/12 at 10:33 pm to BFIV)
quote:
self employment income without a supporting 1099-MISC
This is interesting. Why would the IRS think something is up for this situation? From my very limited understanding, it's up to the "payer" to provide the 1099-MISC. If I, the payee, report the income, why would the IRS get suspicious. Seems to me that shows my honesty more than anything.
I ask this because this happened to me last year.
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krehn11
LSU Fan
IA
Member since Jul 2011
689 posts
| re: 1099 tax questions (Posted on 5/10/12 at 8:41 am to CoolHand)
Yeah - that doesn't make much sense.
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BFIV
Member since Apr 2012
1008 posts
Online
| re: 1099 tax questions (Posted on 5/10/12 at 9:30 am to CoolHand)
quote:
This is interesting. Why would the IRS think something is up for this situation? From my very limited understanding, it's up to the "payer" to provide the 1099-MISC. If I, the payee, report the income, why would the IRS get suspicious. Seems to me that shows my honesty more than anything.
That's a good question. The IRS wants to be sure that you are not pulling income amounts out of thin air to justify EIC or minimize federal income taxes and SE taxes. The IRS can, will, and has examined bank deposit records to determine if some tax payers are being truthful as to their income. To be more specific, with the economy being in such bad shape, there are more and more people filing tax returns as house cleaners, lawn services, babysitters, etc. No doubt many of these returns are legitimate. The IRS requires that a tax return prepared by a CPA or any paid, professional tax preparer must be prepared and filed while exercising "due diligence". This means that not only is the taxpayer responsible for the truthfullness of the return, the tax preparer is also responsible. If the tax preparer does not exercise due diligence by asking the right questions, documenting those answers, and visually examining tax payer documentation, the IRS will also hold the tax preparer responsible for any fraudulent tax filing and preparation activities. Consequently, a 1099-MISC is a document that can be used to verify reported taxable income and create a paper trail for tax purposes. This past tax season, the IRS issued directives that for all Schedule C returns, we had better exercise due diligence and require all clients to furnish written records and documentation for income and expenses AND we were to maintain copies of that information with our office files. If keeping copies was not practical (and sometimes it was not practical), we were to maintain and document our findings and procedures. In short, the IRS informed us that there were 3 red flags they were looking for: EIC, filing status (HH vs S), and self employment income without a supporting 1099-MISC.
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CoolHand
USA Fan
Member since Dec 2011
1454 posts
| re: 1099 tax questions (Posted on 5/10/12 at 9:38 am to BFIV)
quote:
, the IRS informed us that there were 3 red flags they were looking for: EIC, filing status (HH vs S), and self employment income without a supporting 1099-MISC
Good to know my risk of an audit increased. 
Not worried though. I've got documentation to support everything.
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BFIV
Member since Apr 2012
1008 posts
Online
| re: 1099 tax questions (Posted on 5/10/12 at 9:47 am to CoolHand)
quote:
Good to know my risk of an audit increased. Not worried though. I've got documentation to support everything.
You're exactly correct! AND DON"T EVER DISPOSE OF YOUR DOCUMENTATION! You might get audited and you might not. BUT...if you do get audited, it could happen three years from now...or sooner.
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Poodlebrain
LSU Fan
Way Right of Rex
Member since Jan 2004
12685 posts
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quote:
1 subject notebook and an ink pen.
Why not use Microsoft Outlook's calendar, or the calendar on your iPhone, to record where you went during the day, and then you can use Google Maps, or something similar, to determine the mileage from office to appointments? It beats the hell out of a notebook.
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