Posted on 11/23/2021 3:56:25 PM PST by newnhdad
Your taxes are the same as your personal but add in another 10% to cover the employer share of SSI (6.2%) and Medicare taxes (2.9%). You’ll need to pay those.
In a nut shell: Whatever you were making a year, say $1, you’ll need to make $1.1 to cover that extra 10% employer paid shares of SSI and Medicare.
People tend to forget that when looking at corp-to-corp or 1099 employment.
Also, file for an LLC company with your State secretary, usually online and about $50. Instant corporation. Call the IRS line and get an EIN (Employer Identification Number) instantly too. Use that to be paid. The company will ask for an EIN.
As a sole-proprietor, you file the company taxes with your personal taxes, so that is relatively easy. Just keep all receipts related to the job for deductions; meals, mileage, computers and printers and supplies, even deduct your company’s share of the electricity and home repairs.
Good advice above and valid warnings about the need for 1040ESTs (Quarterlies) at 04/15, 06/15, 09/15 and 01/15 of next calendar year. These deposits MUST include your Income (est. profit) AND total FICA per quarter. [FICA is combined Social Security and Medicare Taxation]
Good stuff: You can deduct your health care premiums but probably not all. You SHOULD look into setting up a SEP or SIMPLE retirement plan, this should allow you a larger retirement deduction than a traditional IRA. As a sole proprietor, DEFINITELY do a LLC (on State level) to protect against personal liability. Look at the IRS Schedule C and its instructions, that gives practical guidance on taxes. Trump’s TCJA set up QBID (Qualified Business Income Deduction) that reduces Income Tax but not FICA on the business income.
IRS knows startup businesses frequently lose money in 1st year(s) but will get stinky if it is a continuing loser (Hobby not Business). All of the costs for setups, tools, legal are deductible even if there is no income at start. Good Record Keeping is a MUST, IRS wants some form of logbook if they come prowling! If vehicle is dual use, look for one of the smartphone apps to track business miles vs personal & commuting. Read up on using Standard Mile rate versus actual vehicle costs but keep all RECORDS - VITAL!
Keep the Business bank account SEPARATE from your personal bank account!!! Yes, it is an added expense but it saves you in the long run. Pay yourself from the Business account to the personal account, never directly from the Business in cash!
Hold off on declaring as a 1120S / SubChapter S Corporation until you get experience for a year or more. While this structure has benefits to you, even as a sole proprietor, it has a second tax return, required filing dates and thus headaches you might not want immediately.
Consider using a basic accountant / bookkeeper (does not have to be a CPA here). If you are comfortable in using a computer, there are a lot of programs who will do that kind of work BUT that adds to your LIMITED working day. Using a bookkeeper gets you, if they are good, another set of eyes that can ask about missing records that they see from other clients.
Bona Fides: I am an Enrolled Agent of 20 years tax prep at H&R Block. If you want tax prep at any RETAIL Face-to-Face place, ask for a SENIOR Preparer with 1099 NEC experience. If you use a CPA, ask his experience with 1099 NEC income businesses. INTERVIEW THEM as much as they interview you!
Sage advice. A CPA is about $100/month to $200/month and worth every penny for a new company owner.
Save tax money and extra for you Medicare and social security
Often times it costs too much to be a 1099 contractor to make it worth while
Voluntary is not the best word but IRS will come after you for income tax. I’ve never heard of any agency going after people for SS/Medi because that’s money that’s eventually supposed to come back to you if you live long enough. The times they are a changin’ though.
Other than that, for some people, the paperwork in filing isn’t all that hard, nor is learning the deductions and other allowances. I’ve got one sister that was a bank teller and two others that were bookkeepers and my self employment turned into a one man business which is when I got help from a sisters.
You do have to be into math and an organized person who doesn’t mind paperwork. These days the internet helps, if you’re a competent user of it. That describes the above two of five older sisters and I.
Why sit down with somebody? Because free tax advice you get from the internet is worth every penny you pay for it.
Contractor income should be roughly 30% higher than comparable salary income for a "full-time-regular employee" in order to break even.
That's usually easy to exceed in a good situation.
Taxes are a wash, as long as your rate is high enough and you keep up the quarterly payments.
Business deductions are a minor factor unless you have travel expenses. Those must be carefully tracked and documented. A separate credit card, used only for business travel is the best way to do that.
IMO, the home office deduction and milage deduction are not worth bothering with.
Absolutely, yes, set yourself up as an LLC.
Depending on the situation, consider a liability / umbrella insurance policy.
Or an engineer!
Don’t they design railroads? /Costanza
Become a corporation.
Learn about self employment taxes (Social Security, unemployment, insurance, etc.). Make sure you run the numbers to make sure these are considered in your pay—because they can eat away a higher percentage than a W2 employee.
Get your LLC it’s own Tax ID.
Deduct all of the expenses for your job.
Talk to a tax advisor.
I was a 1099 contractor for 14 years. Once you get the hang of it you will be fine.
But I want to be a city planner.... No. You want to be an Architect. No. City Planner...... George. Just flash the sign.. Lol.
Create a fake name, hispanic sounding, apply for a get an ITIN number and do it all under the table as Jose Smith
I’ve did it my entire career(s) and I still get 1099’s in retirement. You are self-employed. You can deduct expenses, mileage, etc. You pay your own Social Security and make quarterly estimated tax withholding payments. Read up on it, take advantage of it. I used a Simple IRA for that part of my savings.
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😹🤣😂
I pay very 1/4......43% of my gains..
Fed's and State....
I've not have many problems.I have a good tax Lawyer....
FWIW-
If you become an LLC or a Sub chapter S you can cut the double whammy employer and employee paid SS by setting your income low.
If you make %100,000 a year you will be paying about 13 percent in SS. If you make $100,000 a year and set your salary as $30,000 a year you pay 13 percent of that amount. The rest of your earnings are a disbursement on which you still have to pay Federal Income taxes but you save on the SS.
That is one of the benefits of being self-employed but you also have to file two tax returns, business and personal, but you save on the SS. You should try to use the money you save on SS to pay into a Roth or an IRA where you can manage your investments yourself. A lot of people can do better with their own investment accounts instead of paying into the swamp’s SS plan which is pretty much broke now.
Make sure you charge about 75% more than you would expect make as a wage to cover expenses. Talk to a CPA to help figure out how the financial issues you need to consider. A big problem for independent contractors is they underpriced their services.
It would be a good idea to talk to others who do what you will be doing. You’d be surprised at how helpful they will be. They don’t want you to price your services below the market.
Join an professional association of like businesses. They can be very helpful. There is probably so much business out there, they couldn’t handle it if they wanted.
Keep in mind that you need to price your services to cover periods of time when work is slow, vacations, and retirement.
Most service businesses charge 3-4 times the cost of labor. That’s a good rule of thumb
It isn't difficult; however, your ledgers need to match your banking transactions. Obviously, those ledgers must show the banking transactions. You can find books to help out with this if you need them. Oh, you also must send your state their equivalent of the Estimated Tax.
Keep your books current and accurate. It really isn't difficult and the tax agencies don't give you any grief. They will verify your arithmetic and check your banking transactions against your 1040.
I have been self employed more than with a company. I prefer it this way.
If you incorporate, never co-mingle your company banking with the personal banking.
IMO the home office deduction does not cut taxes enough to justify the increased risk of audit. I did a dummy run once years ago and for a couple hundred dollars less tax decided to skip it.
Separate bank account
business only CC
keep your records (spreadsheets are invaluable beyond belief and so easy) but pay a professional to do your taxes. Surprisingly it’s not that much more $$ than turbo tax, much easier. IMO turbo tax is a non intuitive mess.
I was dying until my wife got a job with company health insurance. That was probably the biggest drawback until she did. Also, not having a retirement plan that the employer contributed to.
If your income varies much, spend less when it’s slow and don’t be tempted to spend more when it’s flush. IOW, be more of a tightwad than you would be if you were employed with a salary.
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