I have been working for a couple of companies in the past and have always been on W2 where they match my social security and medicare tax and automatically took income taxes out.
However, I have just recently started to do contract IT work for another company. Being Contract work I am on 1099. I am not sure what my tax rate is and what I should expect to pay at the end of the year.
I am a college student working around 25 hours a week and I really want to stay on top of this if I can.
How do deductions work? I just bought a laptop for this job. Can that be deducted?
Any insight would be greatly appreciated. Thanks again.
Jared

ScottGem

You would fill out a Schedule C at tax time. You would have to estimate your annual earnings to see what your tax rate would be.

I would suggest using one of the tax software programs where you can do what-if scenarios to see your tax liability.

The laptop can be deducted if its used solely for the work you do. You might be able to pro-rate it if you prorate, i.e. use it 75% of the time. Any other expenses that relate to the job (Internet connection, office supplies, etc.) can be deductible expenses on the Schedule C.

jduplooy

OK, so would I need to pay self-employment taxes as well??

I heard that I may need to pay something like 30% total (Income Tax+Self-Employment)

ScottGem

Yes you would. Ask the company you are contracting for. They may have people to help you with this.

AtlantaTaxExpert

Jared:

Normally, I advise clients to put aside about 30% of their gross income so they have the money to pay the tax bill come April 15th.

In the SECOND year, they can start paying quarterly estimated taxes so to avoid any under-withholding penalties.