Tax situation as an Independent Contractor

[The Dancing Peacock]

I just got a new job for an IT Consulting company. Pays well, starts at $25/hour move to $30/hour after a month trial period. The thing is, that I'm considered an Independent contractor. So I get paid the full gross amount, and it's up to me to pay State and Federal Tax, SS and crap like that.

The good thing is that I get to claim, my cell phone bills, gas and car depreciation as expenses. At least my friend was telling me this. My uncle was telling me, that with all this, I should be over the standard deduction. In filing before, I've never not taken
the standard deduction.

My question is, how much of my paycheck, ie percentage, should I put aside each pay period to cover these things come tax time? I'll be there part-time, ranging from 15-30 hours/week.


Any one in a similar situation, any advice?

thanks.

TDP

 

[shopbruin]

my brother is and he says that he's gonna get screwed over in taxes this year. get someone to help you with your taxes when the time comes is the best advice i can give.

 

[kranky]

Actually, get help now so you can plan properly, and avoid trouble later. First, you'll have to file estimated taxes for Federal income tax on a quarterly basis. You'll also have to pay Social Security (FICA) tax at a pretty high rate (I think it's around 13%) and maybe unemployment tax. At the end of the year you probably get a Form 1099 that shows the amount you earned, but no taxes will have been withheld.

The IRS has info on Income tax as well as on Self-employment taxes that you can download as PDF files.

You also need to know your state rules (probably quarterly estimated taxes) and if you have local wage tax you probably have to pay that quarterly too.

With the complexity of tax laws, and the big impact that bad information could have, I'd absolutely get in touch with a tax person in your area to work out a plan, and the sooner the better. You need to make sure you claim all the deductions you are entitled to, and also what records you must keep to document them to the satisfaction of the IRS.

 

[I'm Typing]

I work as an IC for four different companies, in addition to my regular 9-5 job. I strongly urge you to see a Tax Counselor NOW. Be it a Tax Attorney or Accountant (CPA), the money you spend now will be made back fivefold later. Your Counselor will show you how you can deduct everything, shoes, pants, magazine subscriptions, computer books, tools, glasses, tolls, gas, oil, tires-- EVERYTHING becomes a deduction if you can link it in as a legit business expense. In addition, you will have to keep track of EVERY dime you spend, so you can deduct it later. Get and keep receipts, and keep good records.

 

[vi edit]

I've heard independent contractors getting taxed up to 40% of their salary. To be safe, I would hold back at least 1/3 of your check.

 

[~zonker~]

let's see....

7% for Social security
2% for Medicare
Figure what your local and state income tax brackets are and add that percentage to how much to withold.

You should file estimated taxes (pay in) every quarter. Check here for the forms:



Form 1040ES (IRS) note: this is a pdf file

 

[Rastus]

kranky's right, for that kind of money, you should get a CPA on th job immediately, if not sooner.

 

[The Dancing Peacock]

Good lord, I didn't really know what I was getting myself into. I only saw the money. Thanks for all your help guys. I'm going to try and make an appointment with my dad's accountant asap.

I don't know how long I'm going to stay. It's a good IT learning experience for me. Definitely a step up for me in knowledge. But it sounds like a fucking pain in the ass with taxes. Hopefully I'll talk to the guy and he'll set me up with a good plan.



Thanks.


TDP

 

[kranky]

TDP, didn't mean to make it sound like an overwhelming task, I just wanted to emphasize that professional guidance is needed. The tax person will be able to tell you just how to keep your records (for example, logging the mileage you drive for work) and make sure you don't forget any deductible items. The reason you do it now instead of at tax time is so that you have all the records you need to support the deductions. It won't be hard.

Do you have to pay health insurance out of your own pocket?