NFB: self employment taxes ?

[Craig 94 TA GT]

In a couple months, the dreaded tax time is coming. I have a question for any self employed workers...I recently landed a "self employment / independent contractor" type job that does not withhold any taxes, FICA (social security + medicare), etc. Do I need to pay federal and state taxes+FICA quarterly, or as one lump sum during tax time? If quarterly, I suppose you need to fill out a form each time? I know that all self-employed workers must pay 15.3% social security vs. 7.65% for a regular employer, but that's about all I found. Thanks a lot in advance for any advice.

[Bug Lover]

You should pay your estimated taxes quarterly. There is a form (can't remember the number), but you should be able to get it from the IRS website - www.irs.gov. When estimating your taxes, you should include not only the self-employment taxes, but also the federal taxes (if your state has personal income tax, you need to pay estimated taxes for them too).

One thing to note - unless you don't think you'll be making as much this year as you were last year, you should pay in at least the same total amount this year as you paid in taxes last year (what was on your 1040). There are penalties for not paying in enough estimated taxes (or even not having enough withheld from your paycheck). Good luck.

Also, a lot of employers try to get away with paying employees as subcontractors so they don't have to provide insurance for them or pay the FICA taxes, especially in certain fields. You may want to read the IRS information that defines the difference between an employee and a contractor. If you get hurt on the job and don't have insurance, it can be a real pain to file a claim against the people you are contracting for.

I'm not a CPA, but I've been doing accounting for way too long. If you can't find the information you need on the IRS website (or it's too confusing), talk to a CPA in your area.

Finally, if you continue to be self-employed, do your best to set aside money in a traditional IRA. It will save you money on your taxes and can be set up as a regular deduction from your checking account through the right company. I think the max this year is $3000.

Claire

[Craig 94 TA GT]

Claire, thanks so much for the information. It seems like the hardest part is trying to estimate the quarterly taxes, and making sure to slightly overpay to avoid penalties. I found forms 1040-C and 1040-C-EZ for self employed folks. I think those are the correct forms.

[Bug Lover]

The 1040-C is a U.S. Departing Alien Income Tax Return. Are you sure that is what you need? Don't you mean a 1040-V? http://www.irs.gov/pub/irs-pdf/f1040v.pdf

Claire

[Craig 94 TA GT]

Oops, I'm sorry. I meant 1040 Schedule C. http://www.irs.gov/pub/irs-pdf/f1040sc.pdf or EZ: http://www.irs.gov/pub/irs-pdf/f1040sce.pdf I'm assuming that's the one? So I'll need to file it quarterly? Or just pay the IRS quarterly without any forms?

[Bug Lover]

The 1040 Schedule C is what you'll add to your regular tax return (1040) each year. I'd suggest the 1040-V for your quarterly payments.

To estimate your 2005 payments, look at line 62 of the 1040, line 38 of the 1040A or line 10 of the 1040EZ for 2004 (once you have filed). Take that number and divide by 4. That will be a good start toward estimating your tax payments.

Claire

[Craig 94 TA GT]

Thanks Claire for all your help. You've answered every question and concern I had.

[Bug Lover]

And possibly a few you didn't have.