Self-Employment Questions

[Gardenia1]

Hello!

I just started working part-time as a consultant for a school institution, and I have several questions about self-employment taxes. A lot of this is new to me, so thank you in advance for your patience!

My contract states that I am an independent contractor and not an employee of the school, so I assume I will get a 1099 at the end of the year. 

My questions are:

1. Do I still need to pay taxes quarterly if this is just a part-time job?

2. If so, how/where do I do that, and when am I supposed to begin paying?

3. How should the institution that hired me handle reimbursements? If reimbursements are included in my monthly stipend, it will look like I generated that much in income and will be taxed accordingly; however, is that where deductions come in? Can I deduct those expenses when I file my taxes, even though I was reimbursed? 

4. If I can't deduct what I was reimbursed for, is it more cost effective to not get reimbursed and just save those items to be used as deductions on my tax return?

5. Can I claim/deduct money spent on food and (non-alcoholic) drink while traveling for work?

6. Finally, moving forward, if I continue in the work of consultation services, is there a "best" way to do it (ex. independent contractor, create a business, or request to be hired as an employee so I can get a W-2, etc.)?

THANK YOU!

[JandKit]

Hi
Taking your questions is the order given
1. Yes, estimated taxes should be paid to prevent the estimated tax penalty

2. You can make the payments at IRS.Gov/Payments

3 & 4. Reimbursements are not available as a deduction to you. If reimbursed, you have no cost in the expense. It is possible that the mileage you drive is partially reimbursed. In that case, the balance of the expenses can be claimed on the tax return.

5. Currently business meal expenses are deductible at 50%

6. Finally, If being a soleproprietor allows more freedom than choose that path. It is exciting and an individual decision that only time will tell

[MelanieCPA · Accepted solution]

Hi @Gardenia1 

Great questions!  Let me try and provide some insight.

1.  Yes, the IRS requests that we "Pay as We Go" .  If you will net more than $400 of self employment income, you should make at least quarterly tax payments.
2. You can make and track your estimated payments on the IRS website.  Create an account for the best information IRS Payments   There are other good reasons to create an IRS account such as tracking your tax return filing and refund status.  I would recommend starting now!
3. If reimbursements for expenses are included in your Form 1099 NEC as non-employee compensation (Box 1) you can deduct them as expenses on your Schedule C in your year end tax return.
4. If the expenses are not reimbursed you can still include them on your Schedule C if they are business related.  In fact, it is expected that you will likely have business related expenses that are not reimbursed.  These could be such items as mileage, advertising, office supplies, home office, business use of cell phone and many others.  TurboTax does a great job of setting up your Schedule C and walking you through the various expense categories.
5. You can deduct 50% of your business meals.  Keep your receipts.  Tax Deductions for Business Travelers 
6. Everyone's situation and preference is different!  There are pros and cons to being self employed versus an employee.  Many people enjoy the freedom of being their own boss! 

Thank you!

Melanie 

[Gardenia1]

Thank you, @MelanieCPA! Your responses made perfect sense. I appreciate your thoroughness and attention to detail!

[MelanieCPA]

Yes, your first payment would be due on September 15.  But you do not have to wait that long to make a payment.  You can make payments at any time on the IRS website.

If the income is included on the Form 1099 NEC in box 1 you can take the deduction on your Schedule C.  If the expense is reimbursed and not included on the Form 1099 NEC , the expense is not permitted as you were reimbursed.

Hope this helps!

Melanie

[Gardenia1]

Great - thank you again, @MelanieCPA! (Those follow-up questions were actually meant for JandKit. I hadn't seen your first response when I posted them. Sorry for the confusion! What you said both times is extremely helpful!)