How much should I set aside for taxes?
I started a new job as a 1099 independent contractor, and have never been taxed in this way before. My understanding is I need to set aside 13.3% for federal income tax and some amount for state tax. I live in kentucky, have searched the state department of rev. website and haven't found any numbers.
Is this a correct understanding? It seems to me that I'm missing something. That 13.3 seems to only cover social security and medicare, certainly there is more.
That brings me to part 2 of this question, and that is paying quarterly estimated taxes. I read the IRS website on this and didn't find it very helpful for my situation. I don't make this year what I made last year, so it doesn't make sense to pay 25% of last years taxes. Truth is my income this year is probably going to be lower than what I paid in taxes last year, that just doesn't work. So with having no basis, and a new "business," how does one establish (if required) how much to pay in quarterly taxes?
- troLv 78 years agoFavorite Answer
yes, is is approx 13.3%,if you look at Sch SE you will find that you take the Sch C 'net' amount x .9235 and that total by the 13.3%
and you need to prepay your anticipated taxes, including se and income, quarterly on 1040ES, the remaining two will be Sept 15 and Jan. 17 next year
for the requirements, look at form 2210, it will help you understand what has to be prepaid each quarter
- JudyLv 78 years ago
The 13.3% is just self employment tax (ss and medicare) - income tax is separate, and the % varies depending on many things about your personal tax situation. There may also be state and local taxes.
For quarterly, you make your best guess. One way is to guess what you'll make net, and fill out a return using those numbers and last year's forms.
- Anonymous8 years ago
1. Unless you are misclassified employee, this isn't a job, it's a client of yours.
2. 13.3% is for SE tax. You will also federal and state income tax.
3. See form 2210 for calculating the amount you are supposed to send in for quarterly taxes to avoid a penalty.
- BobbieLv 78 years ago
Your business operation services that you perform for this purpose to your clients customers, etc.
Plus your federal income taxes at your marginal tax rate for the tax year will need to be included with your quarterly estimate taxes that you really should be doing during the tax year and NOT just try to set the amount aside for this purpose and time in your life.
Schedule C and the Schedule SE along with the 1040 FIT return to correctly fill out and complete your 1040 income tax return for your business operation.
Use the search box at the www.irs.gov website for What is Small Business Filing Season Central?
Small Business Filing Season Central is your one-stop assistance center for filing your business returns.
Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business is operated to make a profit.
What Can I Deduct?
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
It is important to separate business expenses from the following expenses:
For additional information, refer to the chapter on Cost of Goods Sold, Publication 334, Tax Guide for Small Businesses and the chapter on Inventories, Publication 538, Accounting Periods and Methods.
Note: You can elect to deduct or amortize certain business start-up costs. Refer to chapters 7 and 8 of Publication 535, Business Expenses.
Personal versus Business Expenses
Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part.
The remaining 30% is personal interest and is not deductible. Refer to chapter 4 of Publication 535, Business Expenses, for information on deducting interest and the allocation rules.
Business Use of Your Home
Refer to Home Office Deduction and Publication 587, Business Use of Your Home, for more information.
Business Use of Your Car
Refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses. For a list of current and prior year mileage rates see the Standard Mileage Rates.
Other Types of Business Expenses
This list is not all inclusive of the types of business expenses that you can deduct. For additional information, refer to Publication 535, Business Expenses.
Page Last Reviewed or Updated: February 21, 2012
Filing and Paying Your Business Taxes
The form of business you operate determines what taxes you must pay and how you pay them.
The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. An employee usually has income tax withheld from his or her pay.
For additional information refer to Publication 583, Starting a Business and Keeping Records.
Net PROFIT from the schedule C and the SE for this purpose.
Four payments for the 2012 tax year 3 of them during the year 2012 with each payment voucher for each quarter due the # 1 by April 17 2012 with the final # 4 due January 15 2013 for this purpose.
You can also find the mailing address for the payment vouchers and also on the outside left side of the envelope write the 2012 1040ES payment voucher for this purpose so that the IRS will know what is inside of the envelope for this purpose and use the address that is on the page 4 of the instructions for the 1040ES at that time in your life.
Unless you choose to pay them with some other method such as credit card or direct debit or whatever method you want to choose for this matter.
Hope that you find the above enclosed information useful. 07/18/2012