Just got offered a job, he is gonna pay me as a independent contractor. how do I pay taxes?

Question

I have always worked for an employer that has taxed me. Now I was offered a job that pays me as an independent contractor. How do I report the taxes? I am being paid 50k, ... do you think I could get away with reporting taxes for 30k instead? thanks

Answer 1

You will need to file a form 1040-ES for your estimated taxes.  If you think that you are going to make $50K a year, then set aside 15% for Self-employment tax and another 15% for Federal Income tax.  Also, set aside whatever your state tax rate is.

If you want better information, you can read IRS Publication 15 and the similar publication for the state that you live.

When you file your Federal Income Taxes, you will report your gross earnings on Schedule C along with any related deductions for expenses incurred with your job.  Commuting doesn't count as a business expense.  Read IRS Publication 334 to get a good idea of what you can write off as legitimate business expenses.

Answer 2

You must save enough money to pay your taxes at year end.  Check the state income tax rates on the state website for the state you live in (usually your state's name dot-gov), and for the federal tax rates for your pay scale (irs.gov).  Your employer will send you a 1099 shortly after the end of the tax year (you usually get this after Jan. 31st).  The government will already know how much you were paid because your employer will have to report his payroll expenses anyway.

You can't cheat Uncle Sam.  Sorry.

Answer 3

As an indep contractor, you will be paying estimated taxes quarterly, using Form 1040-ES.  You have to estimate your yearly tax liability including both halves (employee and employer) of FICA and then send in 1/4th of that every quarter.

And I hope you are kidding about underreporting your income.  Since your "employer" is paying you over $600, he will be sending you a 1099-MISC (instead of a W-2) and of course the IRS will get a copy as well.

Answer 4

I wouldn't do that because he's going to report the amount he paid you to the IRS (as a deduction for his tax return), so in the event of an audit they could discover your underreporting.

But, as an independent contractor you will have all kinds of tax deductions (mileage, equipment, supplies, health insurance etc.) to offset what you make.

If you're not familiar with tax laws, I recommend one of two things. Either hire an accountant to do your taxes, or take the time to learn how to do it yourself. All the information you need is available on the internet, but you can plan to spend a lot of time to learn it all. I've been self employed for 5 years and have become good at doing my own taxes, but for some people it's not worth the hassle.

Answer 5

At the end of the year your employer will report your income on a 1099 form so the IRS will know your income.  

It is up to you to keep track of your tax liability and send the IRS a payment, usually quarterly. If you underestimate the tax you will have to pay in April.

Answer 6

No because he is deducting the payment to you with the IRS. Usually you have to pay them every 4 months. You also have to pay social security and state taxes. Get a hold of a tax man and he can figure it out for you. The IRS really watches this kind of payments so be careful.

Answer 7

I would only do this if you are very disciplined with saving money. You should file quarterly on your taxes if possible instead of end of the year. My hubby does contract labor work and we will always owe tax money till we die.Just remember you will have a huge tax bill at the end of the year. You pay higher taxes doing contract labor if you don't have a company you can incorporate.

Answer 8

You'd file a schedule C or C-EZ showing your income and any associated allowable expenses, and a schedule SE to calculate your self employment tax.  The numbers from the bottom of the two schedules will go onto a form 1040 (not 1040EZ or 1040A) to calculate your total tax owed.

Reporting less than you are actually paid is tax evasion, and will get you in deep trouble when you get caught.  And you most likely will get caught.

Answer 9

No you could not get away with it.   You will get a form I believe it is the 1099 that you will use to report your earnings. That will determine what you OWE  your employer will not be with holding anything so you will owe at the end of the year.  

Your employer will also submit a form to the government that has the same information and a few other details for his taxes.  If the numbers do not match they will charge you with tax evasion.  Your best bet is to put away 20 or so percent of your checks into a savings account you will use that money to pay your owed taxes.