Estimated tax - self-employed without 1099 form

[khuong5791]

Hello,

I file tax independently. I have 2 questions:

A. A Korean company owed me $1,700 (my expenses - I have retained all the receipts and details for reference). Then, during May-July this year, this company wired transferred $5,000 to my bank account. This fund consists of the reimbursement for my expenses ($1,700) and my salary ($3,300 - freelance consulting services). I asked this company several times to send me the 1099 form so that I prepare for my tax refund but they said NO. They said they did the same for other consultants and all consultants have to manage themselves.

A1. What should I do?

A2. I assume that I only have to pay tax for the $3,300. Correct? Any issue to be taken into account?

A3. According to the payment period this year (https://www.irs.gov/faqs/estimated-tax/individuals/individuals-2), I must pay by Sep 15. Today is Oct 25. Can I be penalized? 

B. I was full-time professor (W2) until May this year. I've been officially unemployed until now (except for a small consulting service mentioned in part A). Beginning from next week, I plan to trade options and futures (not so much, probably P/L less than $3000), and I also expect to get some additional income (freelance consulting) by December.

I talked with a few CPAs, and then advised me to pay an estimated tax which is about 20% of the non-withholding income (combine what I earned from A, options/future trading and future consulting). Does that sound reasonable?

C. I have been using Turbox Tax for a few years now. This year, I guess my tax situation might be a bit more complex than my past (because of my plan to trade options/futures). Is there any issue to be taken into account using Turbo tax? 

Tks for your advice in advanced.

[JaredS_CPA]

Hello khuong109,

Thanks for joining us today. As to your questions:

A 1099-NEC is an IRS form. Foreign companies are not required to provide them and quite a few US companies don't provide them, either, but you can still report your income without it.

A1 - Report the total $5,000 as income, then

A2 - Claim the $1,700 as an expense where you will only be taxed on your net earnings of $3,300

A3 - You are talking about estimated tax payments, which you should pay if you are expecting to owe at the end of the year. I don't know your whole tax situation, so if you have other income and withholdings that could cover this smaller amount, you should be fine. On the other hand, if all your net income is self-employment but is less than your standard or itemized deductions, the only tax you need to pay an estimate for is the self-employment tax of 15.3% (it's actually a little less than that, but I won't bog this reply down with the details). Otherwise, you can use these free tax calculators to help you estimate. It is possible you could be penalized for not paying estimated taxes in the quarter you earned it, but that is based on a number of factors (total amount owed, the frequency of your income, etc.). If you think you will owe, go ahead  and pay as soon as you can.

B - Yes, that sounds reasonable. The 15.3% mentioned earlier is the minimum you would have to pay on any self-employment net income for the self-employment tax (social security and medicare) where 20% is taking into consideration the additional income tax. It might be closer to 25%, but really depends on your individual situation and whether you want to pay estimated state tax, too.

C - TurboTax can handle every aspect of the change in your tax situation.

(BTW - that was 3 questions, I'm an accountant, what did you expect 🙂 )

I hope that helps.

[khuong5791]

Tks a million times! 😁