Earlier this year I dived into the world of contractor services. I transitioned at the company I worked for as an Employee to a contractor, in a fairly minor capacity, 8hrs a week. I'd like to make sure I don't end up with some big tax bill come tax season. Someone told me I could pay taxes on that contractor salary, quarterly. Is that the case? Should I be doing that? Where in the world do I start? How does this work in conjunction with my FT job, of which I will do taxes for during tax time, like normal. I take extra out each pay period to make sure I don't end up paying anything/get a nice little refund.
If paying this quarterly is best practice, does TurboTax offer any services to sort of get me started with this?
Tax on your contract work will be at your marginal tax rate plus self employment tax of 15.3%. You can either increase your withholding from your job as an employee or make periodic payments of estimated tax. This IRS publication is relevant and has the necessary forms.
If you are new to being self employed, are not incorporated or in a partnership and are acting as your own bookkeeper and tax preparer you need to get educated ....
If you have net self employment income of $400 or more you have to file a schedule C in your personal 1040 return for self employment business income. You may get a 1099-NEC for some of your income but you need to report all your income. So you need to keep your own good records. Here is some reading material……
IRS information on Self Employment….
Publication 334, Tax Guide for Small Business
Publication 535 Business Expenses
Publication 463 Travel, Gift, and Car Expenses
Home Office Expenses … Business Use of the Home
Publication 946 … Depreciation
There is also QuickBooks Self Employment bundle you can check out which includes one Turbo Tax Self Employed return and will help you keep up in your bookkeeping all year along with calculating the estimated payments needed ....
Self Employment tax (Scheduled SE) is generated if a person has $400 or more of net profit from self-employment on Schedule C. You pay 15.3% for 2017 SE tax on 92.35% of your Net Profit greater than $400. The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare. So you get social security credit for it when you retire. You do get to take off the 50% ER portion of the SE tax as an adjustment on line 27 of the 1040. The SE tax is already included in your tax due or reduced your refund. It is on the 1040 line 57. The SE tax is in addition to your regular income tax on the net profit.
For SE self employment tax - if you have a net profit (after expenses) of $400 or more you will pay 15.3% for 2017 SE Tax on 92.35% of your net profit in addition to your regular income tax on it. So if you have other income like W2 income your extra business income might put you into a higher tax bracket.
You must make quarterly estimated tax payments for the current tax year (or next year) if both of the following apply:
- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.
- 2. You expect your withholding and credits to be less than the smaller of:
90% of the tax to be shown on your current year’s tax return, or
100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)
To prepare estimates for next year, You can just type W4 in the search box at the top of your return , click on Find. Then Click on Jump To and it will take you to the estimated tax payments section. Say no to changing your W-4 and the next screen will start the estimated taxes section.
OR Go to….
Federal Taxes or Personal (H&B version)
Other Tax Situations
Other Tax Forms
Form W-4 and Estimated Taxes - Click the Start or Update button
How does my side job affect my taxes?
You’re considered self-employed—even if it’s just something you do on the side, like drive for Uber, babysit, or blog.
Your taxes are handled differently than when you’re an employee of a company.
As a self-employed individual you:
- will pay self-employment tax (because income tax and Social Security aren’t deducted from your pay)
- will get a 1099-MISC or 1099-K (unless you only accept cash or personal checks)
- file a Schedule C, Form 1040 (this is how you report business expense or loss of income)
- can deduct money you spent on work-related expenses (like mileage, home office expenses, and cell phone use)
- can estimate the taxes that are due and make quarterly estimated tax payments during the year
Get started by entering your income from self-employment. We’ll handle the rest, from creating the forms you need to reviewing work-related expenses that can help reduce your taxes.
- Where do I enter Schedule C?
- What self-employed expenses can I deduct?
- What is the self-employment tax?
- What is this new 20% business deduction?