This is my first time getting a job and I will be an independent contractor for a company. I have to fill out a W-9 form, then they will give me a 1099 form after I've made some earnings or something (that's the way I understand it). I've never filled out forms for taxes before, so how does this thing work? When I get my 1099 form, do I just take like 30% of the total money I have earned and pay it to the government or something? Should I just go to a place like H&R and have them do it for me?
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Also, I just read about these quarterly estimate reports...how do I do those? There are so many forms to fill out it's confusing -
You need a good tax adviser.
I would get a CPA or an Enrolled Agent to assist me. As contractor you will pay a heavy tax burden. You will pay income tax at the same rates as anyone else who had your wages. But you will also pay SE Tax, which will involve your paying the employee's share and the employer's share of Social Security and Medicare tax. To avoid owing more than you are comfortable with at the end of the year you may indeed want to make quarterly estimated payments. It also may or may not be the case that your company has the right to make you a Contractor. My own thought would be that you probably don't want to work very long for a company that breaks the IRS Rules because chances are that they break other rules too including wage and hour laws and safety regulations. However there is a way that you can work for these birds for less than a year and then at tax time tell the IRS that you, who are now working elsewhere, should have been treated as an employee. At least for the moment you won't have to pay as much tax. IRS Agents will show up unannounced at company headquarters and look into the situation of every single Contractor the company has. Needless to say you won't get a good reference from the company after this. But if the company has a pattern of treating Employees as Contractors you will owe less tax for that year and the company will pay fines that could put it out of business.Comment
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You really need to sit down with a tax professional to discuss your situation. The National Association of Enrolled Agents has an online database of professionals, so that you can search for someone in your area.
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Thanks for the advice...taxes are so confusing. I wish it were just as simple as taking a chunk out of my total income and having them take it or something.
NAEA found exactly only one result for someone in my city :\
How much of my money will be taken out for taxes approximately at the end of the year? 30% of my gross?Comment
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Depends on your earnings
You'll pay 15.3% of your net self-employment earnings. Your income tax rate will vary depending on your taxable income, but you could pick a number for planning purposes, such as 25% of your taxable income. Your state rate is probably pretty standard, CT is 5% of federal adjusted gross income with only a property tax credit as a possible reduction. (Although, some states, such as NY and CA, are like federal tax returns with forms and schedules and itemized deductions and.... Or, Ohio and PA with their local taxes....) And, then there's alternative minimum tax. See why we can't give you a simple answer without talking with you about your entire financial situation?! Go to an EA to help plan. Make estimated tax payments now and June and September and December/January. Get professional advice. It'll be worth the money.Comment
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To meet your need.
There are several ways to find a Tax Professional locally:
National Association of Tax Professionals, www.natptax.com has a directory.
Also National Society of Tax Professionals, www.nstp.org
You have not indicated your location, but most states have a professional society of Accountants, as well as a society of CPAs. These organizations usually have a membership directory, as well as specialties of those members.
Experience has shown that one of the best ways to find a reputable professional is to ask your friends who they use and for how long and whether they are happy with that person's work. It would also probably be to your benefit to ask a friend who is in business for themselves. Since you are starting your own business, your needs involve a Tax Professional who is experienced with "business" taxes, not just "personal" taxes.Last edited by SunTaxMan; 05-25-2008, 03:30 PM.Comment
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Seek a professional first
sentralorigin -
Your questions are basically the routine questions you need to run by whoever prepares your tax returns. I think your best approach is to contact such a person NOW and ask these same questions of him/her.
You do need to be aware of the issues for self-employment tax if you are not an "employee" and the impact such a situation can make on your overall taxes (basically you pay 15.3% more tax!!). Since June is nearly here, estimated taxes most likely are due, with the first payment being due on April 15th (late payment penalties can apply) and the second one due on June 15th. This issue is especially critical if your "employer" has not been withholding any taxes from your 2008 wages.
As others here have mentioned, be VERY careful of a person treating you as an "independent contractor." You can be at risk for issues related to unemployment, workmen's compensation, etc.
Good luck!
FEComment
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Plus
You might not be an independent contractor from your state or the Fed's point of view.Comment
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