 Taxes
for an independent contractor
|
 Dear
Tax Talk,
I just recently became a independent contractor, and I've never
done this before. I was wondering, how much am I supposed to take
out of my checks once a month? And how much do I have to have before
I can deduct things for my taxes at the end of the year when I file?
A friend of mine said I have to have $2,000 before I can write off
anything. Thank you so much. I appreciate it.
-- Deidra
 Dear
Deidra,
When you're an employee, taxes are easy, as generally the right
amount is taken from your paycheck every pay period and you get
a statement (Form W-2) at the end of the year to do your taxes.
As an independent contractor you are self-employed, have expenses
and must keep track of all of this to make quarterly estimated tax
payments so that at the end of the year you do not owe a penalty
for not having paid a sufficient amount throughout the year.
Quarterly estimated tax payments Form
1040-ES for 2006 are generally due on the 15th of April, June,
September and January. (The impending deadline is actually April
17 since April 15 falls on a Saturday.) You can make more frequent
payments if you want, and you can make the payments electronically
by registering at www.eftps.com.
How much you need to pay depends on how much you make, the amount
of your expenses (there is no minimum or maximum) and what other
income, deductions, credits and exemptions you may have. Your best
bet is to make a budget for 2006 and try to plug it into a 2005
tax program (since 2006 taxes will be similar) to come up with an
estimate that includes income and self-employment tax. Don't forget
to look at state taxes, as well. Once you have your result, divide
it by four and make the payments by the due dates cited above.
Alternatively, to avoid a penalty you can pay 100 percent of the
tax you owed in 2005 (if your 2005 AGI is more than $150,000, then
you pay 110 percent), even though you may owe more in 2006 as a
self-employed contractor. Any remaining balance can be paid without
penalty on April 16, 2007 (April 15 falls on a Sunday in 2007),
when you file your 2006 tax return.
To ask a question on Tax Talk, go to the "Ask
the Experts" page, and select "taxes" as the
topic.
|
