contractor tax duties
How much income does an independent contractor
need to take out of each paycheck for their income taxes? Also,
how do you find out about filing quarterly taxes? I keep hearing
that I need to do this but no one has told me where to go for the
information. Thank you for your help. -- Lynn
An independent contractor is considered self-employed and files
Schedules C and SE with his or her individual income tax return.
Schedule C is used to report the gross receipts and
ordinary business expenses associated with that income. Obviously,
the more expenses that you have, the lower your tax bill which means
the lower the percentage of your income that you have to pay in
Schedule SE is used to report self-employment tax
related to Schedule C. Self-employment tax is 15.3 percent of 92.35
percent of your self-employment income. One-half of your self-employment
tax is a deduction used to arrive at your adjusted gross income.
In addition, as a self-employed individual you can
claim deductions for health insurance and retirement savings that
are also adjustments used to arrive at AGI. You also have to consider
the fact that the tax rates are progressive and you may also have
state income taxes as well as your itemized deductions affect the
tax you pay.
With all these variables, it's impossible to tell
you what percentage of your earnings you should put away for taxes.
If you can't afford to hire an accountant, then your best bet is
to try to pencil in a tax return to estimate your taxes. You should
also review IRS
Publication 505, Tax Withholding and Estimated Tax and IRS
Publication 334, Tax Guide for Small Business.
Form 1040-ES is used to remit your quarterly
estimated taxes to the IRS. It's like sending a payment to your
credit card, except the IRS does not send you billing reminders.
Payments are due on the 15th day of April, June, September and on
Jan. 15 of the following year. Although estimates are due only on
a somewhat quarterly basis, you can pay more often if you feel that
works best for your budgeting. You can also register to pay via
Federal Tax Payment System.