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New Member
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Aug 17, 2007, 12:30 AM
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Independent Contractor
I did a little searching around and found a few topics that touched on this, but my circumstances are a bit different than the topics I found.
I just was obtained by a small web design company as an independent contractor, I've never done anything like this before, but it seems like a great gig since I'm in college currently, and the hours are what I make of them. I live in Washington state.
The employer gave me a W9 form and a contract outlining my duties, wages, etc. My questions are: 1) What forms do I need to fill out for taxes, when do I need to turn them in, and where do I get these forms. 2) How much money should I put aside for taxes, assuming my income won't be over 25k a year. I read about 33%, is that valid for WA as well? 3) Is there anything else I should be aware of with these taxes? 4) Would it be more cost effective to get a sole proprietorship business license?
I've never filed taxes before, and every other job I've had has always automatically taken taxes out as an employee. Any knowledge/advice would be strongly appreciated.
Thanks in advance for your time.
Jimmy
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Expert
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Aug 17, 2007, 05:43 AM
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They will give you a 1099 at the end of the year, many self employed people will file every quarter an estimated tax, ( this way you will not end up with any penalties) You will first of all have to pay 15 percent of what is paid you for social security taxes, then you will have to pay income tax on the net amount. This will be according to your tax status. So yes I would hold at least 33 percent back. And you may not even need a business license, but if you do need one, you get it from the city or county where you live.
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Senior Tax Expert
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Aug 17, 2007, 08:09 AM
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Jimmy:
Fr Chuck's advice is solid.
Your work sounds like it is basic consulting or contract work, so a business license is NOT needed for the type of work you will be doing. However, if you call and ask the local city or county, they will tell you that a business license is required (that's how they collect taxes).
General rule: A business license is NOT required by law if you do not open a place of business.
If you put 33% aside, you will be fine. The first year, quarterly estimated tax filings is not required as you are in the safe harbor of this being your first year. Starting next year, however, quarterly estimated tax payments will bee needed.
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Computer Expert and Renaissance Man
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Aug 17, 2007, 08:16 AM
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To add to the others, you will file a Schedule C with your income tax return. All income (from the 1099) and all expenses will be entered there. Some things you can expense out:
Your Internet connection costs
Mailing costs
Any items purchased EXCLUSIVELY for business use
Mileage to and from your client
So keep good records of all your costs.
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Uber Member
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Aug 17, 2007, 08:35 AM
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Hello Jimmy:
Now that you know YOU have to bear much of the burden that used be born by your employer, hopefully you realize that the income you would accept as an employee is FAR short of the amount you should accept as a contractor.
You need to write a business plan in order to determine exactly how much you should charge, but I would guess that as a contractor doing the same work as an employee, you would have triple what an employee earns to just break even.
Be careful about employers who use this tactic to pay teeeeeeny money.
excon
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Full Member
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Aug 17, 2007, 12:11 PM
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Here's an easy way to determine how much to hold back for taxes. Look at a paycheck stub from when you worked for someone else that the gross amount was about the same as what you would make now after you deduct your expenses. Look at what they withheld for federal income tax. That will be about the same as what you would hold back now. Look at state income tax they withheld. That will be about the same now. Now look at what they withheld for Social Security and Medicare. That amount will double because you are self employed. The only difference in your tax liability is in your social security and medicare withholding. Pretty easy.
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Senior Tax Expert
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Aug 19, 2007, 07:03 AM
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All this advice is valid.
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