I am an independent contractor. I sell travel services. How does this work with my taxes?

Question

I am an independent contractor (not MLM!!) I sell a travel service to customers. I get a commission from my host agency. I have almost zero business expenses. How do I go about filing my taxes? I haven't got any commission yet but I want to figure this out before I do. If I don't like all the hoopla I will quit and stick to regular employment.

In short, I sell a cruise, I get 500.00 or so commission. I operate as an "independent agent of ....." I do not promote myself as any "business" name.

How do I file my taxes both state and federal? Do I have to do it quarterly?

Please Advice.

Answer 1

At the end of the year you will report your commissions & expenses on a Schedule C (here's the link so you can see the types of expenses you can take http://www.irs.gov/pub/irs-pdf/f1040sc.p... ). The profit or loss from the Schedule C flows to the first page of your tax return & gets added/subtracted in/from your income.

There are probably expenses you are not thinking about. For example, itemized cell phone or long distance calls, % of internet connection, % of your computer/printer, paper, ink, any business mileage (even to buy office supplies), postage......the small deductions add up.

As soon as you start making a profit you will have to determine if you need to make estimated payments. But instead of 1/4 payments the easiest way is to increase your withholding if you also work a regular job.  My general rule is to increase withholding from my regular paycheck by 30% of my profit (commission less expenses).  If you want to make 1/4 estimates you might need help the first time, but here's a link (look about mid way down) for further info: http://www.irs.gov/publications/p505/ind... Important: profit from self employment is taxed at a higher total rate because you pay all of the social security & medicare (if you work for somebody else they pay 1/2).  

Don't forget if you have a profit you probably will have state tax due on it, and possibly local business/merchantile taxes (possibly even a business license is needed).

If you end up with a loss (which doesn't sound likely) that's o'k, but not indefinitely (there are "hobby" rules that limit the number of years you can have a business loss).

Best of luck!

Answer 2

Keep good records of your income and associated expenses,  For federal, file form 1040, schedule C or C-EZ, and schedule SE.  Yes you should make quarterly estimated payments if your total tax for the year will be over $1000, otherwise you'll be penalized.

For state, it depends on your state, but if they have an income tax, you'll have to file and will most likely be required to file quarterly for state also, and possibly for local.

Answer 3

You will have to pay taxes as if you were working a normal job, plus the employers portion of social security/medicare.  Since you are not having your taxes withheld, it will depend on how much you earn on when you make your tax deposits - quarterly or annually.  You don't need a "business name" to be a business, so when you file your taxes, you will complete the section for being a business where you can deduct the costs involved in creating your income.  Since you don't mention what state you are in, I can't help with that.

Answer 4

Read about self employed tax filing and payment of estimated taxes: http://taxipay.blogspot.com/2008/04/tax-...

Answer 5

Taxes is Taxes, you need to pay it. :)

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Answer 6

You may have expenses such as telephone, mailing (mail docs to clients), fees to host agency?, subscription to Travel and Leisure, Sabre fees?, bonding, website, brochures

Answer 7

You are self-employed.  You report your income and business expenses on Schedule C or C-EZ.  If the net profit is more than $400 for the year you also attach Schedule SE to calculate the self-employment tax.  SE taxes are levied at 15.3% of 92.35% of the net profit on the first $102,000 in 2008 and 2.9% on the excess.

If your tax liability for the year is expected to be over $1,000 (about $7,400 in profit will hit that) then you must make quarterly estimated tax payments using Form 1040-ES.  Here's a link to the package:  http://www.irs.gov/pub/irs-pdf/f1040es.p...  The instructions will help you in estimating your tax liability.  Payments are due on 4/15, 6/15, 9/15 and 1/15 of the following year.  You can skip the 1/15 payment if you file and pay any tax due by 1/31.

Those are the Federal rules.  States with an income tax are similar as far as making estimated payments are concerned.  Hit your State's DOR website for further guidance.