How to Prepare Taxes as a new Consultant

[eveningsky5]

Hello,

I just started getting paid for some marketing consulting work that I've been doing, and I've got lots of questions:

• It's too soon to tell if this is something that will be long term, but should I register a DBA? Sole proprietor or LLC business?
• How do I know how much money to set aside for taxes? 
• Can I start paying taxes monthly or quarterly? If so, how do I do that?
• Anything else I can do to prepare for 2024 taxes next year?
• Can I claim deductions on say a laptop I got last year for my consulting work? 

Thanks in advance for your help!

[DawnC]

You don't need to register to start your tax planning and yes, you can claim the business portion of the laptop you use for your business as a business expense.   You can estimate your income and yes, you will need to make estimated payments to avoid penalties.   There are helpful links below that answer your questions.   Good luck on your new endeavor!

If you don't have an employer who give you a regular paycheck and a W-2 at year-end, you are self-employed.  You need to keep track of your income and expenses, and vehicle mileage, if you use your vehicle in performing work for which you earn taxable income.   As a self-employed taxpayer, you'll also see some new forms on your tax return. We'll automatically fill these out for you in TurboTax.

• Schedule C: This calculates your net profit or loss, which carries over to Schedule 1, line 3.
• Schedule SE: This calculates your self-employment tax, which shows up on Schedule 2, line 4. You get to deduct half of it; that amount transfers over to Schedule 1, line 15.
• 1040-ES: We'll generate four of these estimated payment vouchers, one for each quarter, if (like many newly self-employed people) you didn't withhold or pay enough taxes throughout the year. These vouchers are for next year's return, in case you need them.

Here are a few more helpful articles to help you get started down the right path to reporting your self-employment income/expenses (and taking advantage of the tax breaks!).

Self-Employed Tax Deductions

Reporting Business Income and Expenses

Using a Vehicle for Business

Beginner's Tax Guide for the Self-Employed - a nice summary of the information above.  

[eveningsky5]

Thank you! I have some follow up questions:

• I do have one employee that I pay salary for, but they are abroad. Do I still need to account for payroll tax? If so, how do I calculate that? Any special procedures for employees abroad?
• I work from home. Do you have any particular articles on how to calculate this deduction? I live in a 250sq ft micro apartment and work from my corner standing desk. Utilities I pay are cell phone and electricity. 
• After business expenses/deductions and paying employee salary, and I have under $400 net earnings, do I still need to pay quarterly taxes?

[Vanessa A]

I do have one employee that I pay salary for, but they are abroad. Do I still need to account for payroll tax? If so, how do I calculate that? Any special procedures for employees abroad? It depends.  Do they come to the US to work? If so, the withholdings on foreign  non resident alien employees is 30%. If not, then you would not have to do payroll taxes on them. 

I work from home. Do you have any particular articles on how to calculate this deduction? I live in a 250sq ft micro apartment and work from my corner standing desk. Utilities I pay are cell phone and electricity.   In order to claim a home office deduction, you would have to prorate and the area would have to be exclusively used for your business.  Meaning, it can't be a dining room table where you eat or the couch.  It would have to be single use as an office for your business in order to claim anything.  Then you would prorate the space to the expense.  In other words, if you have 25Sq.ft. of space, you would deduct 10% of your expenses like electricity.  As for the phone, is that business or personal?  If it is shared, that would also have to be prorated. 

After business expenses/deductions and paying employee salary, and I have under $400 net earnings, do I still need to pay quarterly taxes.  If you are sure you will only have $400 for next year then depending on your other income it may still be a good idea.  It would be $60 so any penalty would be small, but technically you should pay quarterly, but other withholdings may cover that small amount.