posted January 19, 2005 10:59 AM
Hi everyone - I'm going to be doing some work from home and am curious how to handle taxes. I know the govt. says that all ind. contractors need to pay taxes quarterly but I'm unsure of what percentage to pull from each paycheck and set aside.
posted January 19, 2005 12:05 PM
Estimated taxes and/or corporate taxes are filed directly with the IRS, state and local governments. There's really too much to summarize about all the possibilities here, so best to get the necessary pamphlets or consult an accountant. How it is handled varies for a standard self-employed person v.s. being incorporated too.
A simple rule of thumb for a regular IC (and this is an exaggerated ball park) is to figure out your tax bracket for the gross income you'll make for each tax obligation and set that aside away from your personal funds, so you don't spend it. For example, I set up a special savings account for my IC income and then move out what portion I feel is my net income (after taxes).
Fed - 25% FICA - 7.65% X 2 - 15.30% PA State - 3.07% Local - 1% -------------------------- Total 44.37%
So basically, if I receive a $1000 check, I only use $500 of it and ignore the rest until making my estimated payments. Any reserve, I roll-over to the next quarter.
My actual tax obligation will be less due to business expense writeoffs, etc. But this way I always get a pleasant surprise when I file my year end return.
May not be the preferred method for everyone, but it works for me. You can always complete the worksheets that come with the literature to get a better picture of what you'll need to pay in.
posted January 19, 2005 12:09 PM
From the IRS website:
"4.3 Interest/Dividends/Other Types of Income: 1099–MISC, Independent Contractors, and Self-employed
What, if any, quarterly forms must I file to report income as an independent contractor?
There are no quarterly income reporting requirements for Federal income tax purposes. However, because you will have no withholding taken from your income, you may need to make quarterly estimated tax payments. You use Form 1040-ES (PDF), Estimated Tax for Individuals.
You need to be aware that there may be state and local requirements for estimated tax payments. You can start looking for information at How to Contact Us. You may want to go to your state's individual Web site for additional information. To access the state you need go to our Alphabetical State Index.
References:
Form 1040-ES (PDF), Estimated Tax for Individuals Publication 505, Tax Withholding and Estimated Tax Tax Topic 355, Estimated Tax Publication 334, Tax Guide for Small Business Alphabetical State Index Tax Information for Business"
I don't file quarterly taxes because my husband always way over pays and we always get a refund, but depending on your situation, if you are going to owe for the tax year, then you will need to file quarterly.
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posted January 19, 2005 10:59 AM
