Indepentdent contractor and taxes?

Question

So I am an independent contractor for the local newspaper. So what do I do now with the whole tax thing? Ive never filed before becuse the only other job I had I was paid under the table. How does all of this work. My take home in a month is around a grand, if that helps and I started in the middle of June.

Answer 1

File Schedule C or C-EZ for the income and associated expenses, schedule SE to calculate self-employment tax for social security and medicare, and a form 1040.  You should also be filing quarterly estimated returns, and paying in the tax you'll owe.

As to the car, you can't just write off the car, but if you drive business miles, then you can deduct for those miles.  Warning - miles driven from your home to your main jobsite are commuting miles, and are NOT deductible.

You do realize that if you worked "under the table" and didn't report that income, you illegally evaded taxes for that year?  And that if you didn't file, there is no statute of limitations on when the IRS can levy taxes on that, since the clock on the SOL doesn't start running until a return is filed?

Answer 2

Immediately start keeping a written diary of your driving mileage. Make categories - personal, commuting, and business. Only the business portion is deductible and you need it in writing.

You can deduct the business percentage of all costs or a flat mileage rate. There are yearly limits.

Also, don't consider all that money yours. Put aside around - guesstimate for you - 20% or 25%for taxes. You will be paying regular income tax and 15% self employed tax.

Get a 1040 long form and pencil in estimated numbers to get an idea. You then have to pay in - each quarter -  your estimated taxes. Ther are penalties if you are late or under.

I believe that - from memory - if you pay in 90% of last years taxes on time you will not have a penalty.

It is hardest the first time but well worth the trouble. Remember to keep all receipts of any business related expenses. Many can be deducted. I don't know what you do but could be ink, office supplies - basically anything you purchase specifically for you business.

Answer 3

As a contractor, you have now entered the world of paying in your own income tax, social security, and medicare tax, since you have no employer withholding those for you.

When you do your taxes, you will include a Schedule C to declare your income and expense from the newspaper gig, and to compute the profit from it.  You will be taxed on the profit, so it  is in your best interest to deduct all the expenses that you legally can.  The biggest one will be the mileage on your car which is usually done by counting the miles you drive doing the job, and multiplying by the standard mileage rate.  You can also deduct any other expenses you incur because of this job.  The test is whether the expenses are "ordinary and necessary".

You will also be including Schedule SE on you tax return.  This is the very simple form that computes the social security and medicare taxes that you will have to pay.

Since the government doesn't want to wait until next April for their taxes on today's income, you are required to pay quarterly estimated payments.  Go to www.irs.gov and download Form 1040-ES.  This is the form to send in with your payments and it will give you some instructions on how the whole things work.

Here are some real good articles to read about being self employed:

http://www.irs.gov/businesses/small/arti...

http://www.irs.gov/businesses/small/arti...

http://taxipay.blogspot.com/2008/03/w2-o...

Answer 4

Keep track of your expenses - either how many miles you drive or how much gas you buy.  Keep a calendar because if you are audited they will ask to see it to verify the business mileage your drove.  Also, as far as paying taxes you should be making deposits minimum quarterly.  Go to irs.gov and search independent contractor, small business etc.