Taxes as a newly self-employed independent contractor

[kbroy1985]

I am a newly self-employed independent contractor established as a sole prop.  I did earn a paycheck via employment, in which taxes were already deducted, for a short term at the beginning of the year.

1)  From what I read online, I understand that I should pay my taxes quarterly.  Is this accurate?

2)  How do I go about doing that?  Can I pay them quarterly via TurboTax using my already established account?

3)  What forms do I need?  Assuming I can use TurboTax, will I be walked through step-by-step?

4)  In general, I need all the guidance I can get on this.  I have no idea how to approach my taxes, how much I should be paying, how much to put aside, etc....all the things!

[VolvoGirl]

You send in quarterly estimated payments to cover the income tax and self employment tax (FICA). The Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment. You pay 15.3% SE tax on 92.35% of your Net Profit (If it is 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.

To prepare estimates for next year you need to be in your current return. If you can't get your return open, Try this, you can sign back onto your account, click on Add a State. This should get you back into your return. Be very careful not to change anything in your actual return.

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 (Home&Business version)
Other Tax Situations
Other Tax Forms
Form W-4 and Estimated Taxes - Click the Start or Update button

Say No to W4. When you get to the W4 and Estimated Taxes section, say you want to adjust your income to go though all the screens.

How to make the Estimated payments
https://ttlc.intuit.com/community/tax-payments/help/how-do-i-make-estimated-tax-payments/00/25875

Here are the blank Estimates and instructions…..
https://www.irs.gov/pub/irs-pdf/f1040es.pdf

Or you can pay on the IRS website. Be sure to pick 2023 1040ES payment
https://www.irs.gov/payments

[conniem123]

Hi kbroy1985,

Congratulations on the new adventure!  It's a great time to think about your taxes prior to filing your tax return, and making estimated tax payments since you will not have any tax withholdings.

Many newly self-employed people are surprised at their tax bills at the end of the year because they notice they're suddenly paying a lot more in tax as a self-employed person than as an employee. That's because they're carrying the full burden of paying for their Social Security and Medicare.

Here is a great resource that will address your item 1) and 4), do you need to make taxes and general guidance, https://turbotax.intuit.com/tax-tips/self-employment-taxes/the-self-employment-tax/L8xXjolB4.

The dates and method for payments are in this link, https://turbotax.intuit.com/tax-tips/self-employment-taxes/myths-about-quarterly-taxes-for-the-1099-....

You can use TurboTax to file your 2023 tax return, which will include Schedule C - Profit or Loss from Business.  You can not make your IRS and state estimated tax payments from within TurboTax.  You will use the IRS website and your state website to make your payments, https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

I hope you find this information helpful!

[VolvoGirl]

FOR NEXT YEAR......

To report your self employment income you will fill out schedule C in your personal 1040 tax return and pay SE self employment Tax. You can fill out Schedule C and enter Self Employment Income into Online Deluxe or Premier but if you have any expenses you will have to upgrade to the Self Employed version. Or buy any of the Desktop programs. All the Desktop programs have all the same forms, but you will get the most help in the Home & Business version.

Some general info on self employment on Schedule C.......

You will need to keep good records. You may get a 1099NEC or 1099K at the end of the year if someone pays you more than $600 but you need to report all your income no matter how small. You might want to use Quicken or QuickBooks to keep track of your income and expenses.

Here is some IRS reading material……
IRS information on Self Employment
https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center

Publication 535 Business Expenses
https://www.irs.gov/pub/irs-pdf/p535.pdf

Publication 334, Tax Guide for Small Business
https://www.irs.gov/pub/irs-pdf/p334.pdf

[kbroy1985]

This is my first year in business and I expect a lot to change.  What is the best way to go about estimating my income?

[conniem123]

Hi,

You can estimate your income by projecting the jobs and clients you expect in 2023.  

As a solopreneur, you can write off far more business expenses than employees even dream about, and you'll want to take advantage of every one of them. Learn about the deductions available to self-employed individuals to find out which ones you can benefit from.

The IRS defines deductible expenses as those that are ordinary and necessary for your business. A few common business deductions you won't want to miss include:

• Expenses related to the business use of your home, including:
  • Certain amount of rent or mortgage interest
  • Utilities
  • Phone
  • Internet service
• Business use of your vehicle based on business automobile expenses or the standard IRS allowable mileage rate for your tax year.
• Depreciation of some property and equipment you purchase.

Here is the IRS Pub 535 that has detail about Business Expenses you may incur with your business.

Hope you find this information helpful!

[conniem123]

IRS Publication 535

https://www.irs.gov/pub/irs-pdf/p535.pdf