Independent Contractor

[CASSMONTY14]

Good Morning,

Until today I did not know that I should have been paying quarterly taxes and after reading some posts has me a little concerned.

I receive SSDI in which I do have a percentage withheld for taxes as well as being an independent contractor and my husband is a W2 employee.

I have been on Turbo to try and estimate what we may or may not owe, but with all the different variables in play, I just pushed it aside and thought I would just do our taxes like I normally do. Now I am seeing that I should have been paying quarterly taxes. Should I also be paying quarterly taxes to my State as well?

I am not even sure where to start with all the variables in our situation, any guidance you can give me would be great.

I also know that with being self employed there are a lot of things that I can write off as far as home office, partial cell phone, equipment that I use, internet, etc. but someone had mentioned to me QBI (qualified business income). I am not clear on what this is.

When I try and do research on write offs, etc. I feel like I get taken down the rabbit hole and get pulled in different directions and finding conflicting information.

Thank you for offering your time to help people like me in this situation gain a better understanding of what to do. Thank you so much!

[Stephanie CPA]

Welcome, @CASSMONTY14 !  We are here to help!

A few questions to get started -
Is this your first year working as an independent contractor?
What state are you in?
What general type of work do you do as a contractor (service-based business, sell a product, Uber driver, etc)?
Do you expect to make a profit this year? 

Looking forward to hearing more about your business!

[Stephanie CPA]

Also, no need to go down the rabbit hole yet, when thinking about if you'll make a profit this year.  We don't need to think about ALL the deductions yet. We're just looking for a general idea so far!

[KarenL4]

Hi,

You asked a lot of questions, and it would help to have some income values to go along with them, but let me give this my best shot!

 If you expect to owe more than $1,000 in federal taxes for the tax year, you may need to make estimated quarterly tax payments using Form 1040-ES, or else face a penalty for underpayment.  This article explains more and talks about the safe harbor (which I have recapped below).

To determine whether you need to make quarterly estimates, answer these questions:

1. Will you owe less than $1,000 in taxes for the tax year after subtracting your federal income tax withholding from the total amount of tax you expect to owe this year? If so, you're safe—you don't need to make estimated tax payments.
2. Do you expect your federal income tax withholding to amount to at least 90 percent of the total tax that you will owe for this tax year? If so, then you're in the clear, and you don't need to make estimated tax payments.
3. Do you expect that your income tax withholding will be at least 100 percent of the total tax on your previous year's return? Or, if your adjusted gross income (2022 Form 1040, line 11) on your tax return was over $150,000 ($75,000 if you're married and file separately), do you expect that your income tax withholding will be at least 110 percent of the total tax for the previous year? If so, then you're not required to make estimated tax payments.

If you answered "no" to all of these questions, you must make estimated tax payments using Form 1040-ES. To avoid a penalty, your total tax payments (estimated taxes plus withholding) during the year must satisfy one of the requirements we just covered.

Your SSDI is potentially taxable, if your combined income as a married couple is more than $32,000.  Between $32K and $44K (for a married couple), 50% of your SSDI is taxable. If your combined income is greater than $44K, up to 85% of your benefits may be taxable.  This information from Social Security may help.

You also may need to pay estimated taxes to your state, as well. State rules can vary, but you can usually find them by searching your state's name and "estimated taxes" in a search engine like google.

Here's a great starter article on self-employed deductions.

To do a deeper dive on your personal situation, you may wish to reach out to a live tax expert at Intuit (https://turbotax.intuit.com/personal-taxes/online/live/) or provide more specific details in a follow up message.

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Best,

Karen

[Stephanie CPA]

@KarenL4  has some excellent guidelines and information above!

[CASSMONTY]

Good Morning Stephanie,

I am not able to give you any specific numbers because I am not sure how to calculate what my Independent Contractor pay will be come the end of the year.
I do know what my SSDI is and that I will fall under the 85% taxable guidelines as well as how much I receive from SSDI and how much will be withheld. 
I also have a pretty good idea of what my husbands earnings will be and his taxes taken out as well.
I am not really sure how to calculate everything we might owe without having ALL the information from my self employment. I know to date is about 5500 dollars, but that does not include any write off deductions. I do have receipts for everything pertaining to that.

I believe Turbo has something where I can try and plug in some numbers to see. 

[CASSMONTY]

Yes, this is my first year as an independent contractor. 
I do tech support for Turbo Tax and I also do work for Duke Energy as a billing specialist. 
I live in Alabama

I am not sure if I will or not. I know how much I have made so far which is about 5500 which is 1099. I know what my SSDI check is and the withholding. I have a pretty good figure on my husbands W2 wages and his deductions.