Contract work

[kashleydb]

My husband is about to start a contract work position for a trucking company. He also works full time for a company as a W-2 employee. What do we need to do for tax purposes?

He should keep his receipts and keep track of his mileage for tax purposes correct? The truck he will be driving belongs to the company he'll be contracting for so maybe he doesn't need to keep track of his mileage.

What about the income? We talked about manually deducting from his checks into a savings account so we can pay taxes on the income when we file. Is that what we should do?

Is there anything else we need to do?

[JandKit · Accepted solution]

Hi kashleydb,

You will need to keep records and receipts of all expenses. If the company provides the vehicle, I assume that your husband has no expenses associated with it. If there are any expenses that are associated with the vehicle than he should definitely keep an accounting of them. The self-employed income will probably generate a 1099-NEC which will reflect the amount paid for the year. Any expenses incurred such as unloaders, CB radio, small tools, gloves etc should be recorded. My suggestion would be to create a checking account that is solely set aside for the business. That way there is no doubt about the business use. All Estimated payments can be taken from the account with this documentation.

Finally estimate the earnings for the year as best you can so that you have a good idea what the estimated payments should be. Here is a link that will help you to calculate the estimate income.

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

[kashleydb]

Thank you! That is great information! To clarify, the 1099-NEC will let us know how much we owe in taxes when it's time to file? Then we record any deductions from there and pay the taxes out of pocket (from the business checking account we open) if applicable. Correct?

[JandKit]

The 1099-NEC will only tell you how much income your husband was actually paid. Once you have included all of your expenses , you will then know if there is an additional amount to be paid. To be sure, You can use the link provided to show how much tax will be due(be proactive) before hand. This will allow you to make estimated tax payments early to offset any chance of an estimated tax penalty. Included here for reference:

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

[kashleydb]

Fantastic, thank you!

[VolvoGirl]

To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax.  Here's a Schedule C  https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

You can enter Self Employment Income into Online Deluxe or Premier but if you have any expenses you will have to upgrade to the Self Employed version.  How to enter self employment income

https://ttlc.intuit.com/community/self-employed/help/how-do-i-report-income-from-self-employment/00/...

For the future, you should use a program like Quicken or QuickBooks to track your income and expenses.  There is a QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Online Self Employed  return....

http://quickbooks.intuit.com/self-employed

You will need to keep good records.  You may get a 1099NEC at the end of the year if someone pays you more than $600 but you need to report all your income no matter how small and if you don't get the 1099NEC.

You use your own records.  You are considered self employed and have to fill out a schedule C for business income.   You use your own name, address and ssn or business name and EIN if you have one.   You should say you use the Cash Accounting Method and all income is At Risk.   

After it asks if you received any 1099Misc or 1099NEC it will ask if you had any income not reported on a 1099Misc. You should be keeping your own records.  Just go through the interview and answer the questions.   Then you will enter your expenses.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit greater than $400.  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

The SE tax is already included in your tax due or reduced your refund.  It is on the 1040 Schedule 2 line 4 which goes to 1040 line 15.  The SE tax is in addition to your regular income tax on the net profit.  You do get to take off the 50% ER portion of the SE tax as an adjustment on 1040 Schedule 1 line 14 which flows to 1040 line 8a.  Turbo Tax automatically calculates the SE Tax and Adjustment.

Here is some IRS reading material……

IRS information on Self Employment

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

Pulication 334, Tax Guide for Small Business

http://www.irs.gov/pub/irs-pdf/p334.pdf

Publication 535 Business Expenses

http://www.irs.gov/pub/irs-pdf/p535.pdf

Publication 463 for Travel, Gift & Car expenses

https://www.irs.gov/pub/irs-pdf/p463.pdf

QUARTERLY ESTIMATES

You must make quarterly estimated tax payments for the current tax year if both of the following apply:

- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.

- 2. You expect your withholding and credits to be less than the smaller of:

    90% of the tax to be shown on your current year’s tax return, or

  100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)

Here are the blank Estimates and instructions…..

http://www.irs.gov/pub/irs-pdf/f1040es.pdf

The 1040ES quarterly estimates are due April 15, 2021, June 15, Sept 15 and Jan 18, 2022.   Your state will also have their own estimate forms.

Or you can pay directly on the IRS website https://www.irs.gov/payments

Be sure to pick the right kind of payment and year.....2021 Estimate

[VolvoGirl]

Since he also has W2 income.   

If you also have W2 income, you have to break out the Social Security and Medicare taxes. Only the Social Security part maxes out.  Turbo Tax does it automatically for you.

The SE tax includes what you already paid in from your W2s so your schedule SE tax will only be the difference up to the max amount of $8,537.40 for social security. The max income for social security for 2020 is $137,700 between W2 wages and the schedule C Net Profit.

Medicare is 2.9% (both er & ee parts) of all wages & 92.35% Schedule C Net Profit - no max.

You are paying 15.3% for……

SS for employer 6.2% (up to 137,700 wages & profit)

SS for employee 6.2% (up to 137,700 wages & profit)

Medicare for employer 1.45% (on all wages & profit, no max)

Medicare for employee 1.45% (on all wages & profit, no max)

He might be able to just increase his W2 withholding to cover the extra self employment tax.