Independent contractor travel agent

[Lg901]

Hi! I’m so thankful you are having this discussion. I have a question regarding my position. I was always a salary employee up until May of 2020. The travel agency at work for gave us the option to be independent contractors or resign. I chose independent contractor and my business is thriving. However, I want to do this the right way at the end of the year when it comes tax time! I get paid my commission once a month. How much of that should I be putting back for taxes? 

[John-H2021]

Hello Lg901,

Since you are now self employed you will want to consider making estimated tax payments every quarter, this will reduce your balance due at the end of the year and may also get you out of the penalty for not paying in enough taxes during the year.

Each quarter you should figure out your net profit (income-expenses) and send in the money to the IRS. You will need to pay 15.3% self employment tax plus regular taxes (10%-36% based on the tax bracket you will be in) on the net profit at the end of the year.

Here is a link to help you figure out how much your tax liability will be next year

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

and here are a couple of links explaining estimated taxes and what and when to pay.

https://turbotax.intuit.com/tax-tips/small-business-taxes/estimated-taxes-how-to-determine-what-to-p...

https://turbotax.intuit.com/tax-tips/self-employment-taxes/tips-for-paying-estimated-taxes/L1nDU0sUs