Independent Contractor Taxes

What is the name of your state? CA

I became an independent contractor earlier this year after 3 years employment with the same company (web publishing). I'm trying to estimate my taxes for 2007.

Based on $50,000 annualy, using the quarterly estimated taxes form - 1040 ES, I'm paying about $1,950 per quarter. ($7,800 total).

Will I take another hit in April? Do I need to file a Schedule SE? Any estimate on how much I'll owe based on the 50k?

Thanks,
Steve

sschone said:

What is the name of your state? CA

I became an independent contractor earlier this year after 3 years employment with the same company (web publishing). I'm trying to estimate my taxes for 2007.

Based on $50,000 annualy, using the quarterly estimated taxes form - 1040 ES, I'm paying about $1,950 per quarter. ($7,800 total).

Will I take another hit in April? Do I need to file a Schedule SE? Any estimate on how much I'll owe based on the 50k?

Thanks,
Steve

Click to expand...

Without knowing what your expenses are, your filing status and anything about your dependents, it is difficult to tell you how bad it might be. Assuming you are single with no dependants and that you have little or no expenses - you could have an additional liability exceeding $4,000 in April.

You're going to take a big hit in April. Fortunately, since this is your first year of self employment, you probably won't get any penalties for underwithholding. You file an SE with your 1040, yes you owe that too. A quick calculation (assuming you're single and this is your only income) puts your tax liability at $9000. Add to that the self-employement tax for another $7650.

You need to be very careful that you have account for all your expenses. As a contractor you can deduct off the gross a number of things provided you have reasonable contemporaneous records to back them up and you should make sure your not paying taxes on money you spent for these expenses.

You need to pay in quarterly at least as much as you owed in taxes for 2006 to avoid a penalty.

My recommendations to clients who are new to this - open a separate account to hold your taxes.

For each check that you receive, calculate your expenses. Subtract your expenses from your check to get your net profit.

Calculate your social security/medicare taxes that you will owe (15.3%). Use form 1040-ES to estimate your federal income tax estimation. Is your income steady throughout the year? then divide up the amount estimated in income tax across 4 quarters. If not, you are now reallllly going to need your accountant.

KEY HERE: do not send in your taxes even one day late. Check for 1040-ES for your filing deadlines.