taxes as a *1099* employee ??

[mafibisha]

My husband picked up some extra work last year and was paid as a *1099* employee, where no taxes are withheld and must be paid on your own. He may do additional similar work this year because its been a rough year for us.

Are there any specifics or insights he (we) should know regarding taxes? Someone said its better to pay taxes quarterly, to keep track of and not under or overpay the taxes due. However, he really didn't make that much that he can't remember accurately.

But as tax time is upon us, thought someone here might have some good advice or insight. Will it complicate our tax return or make them alot more difficult?

TIA.

 

[Cheshire Figment]

He will need to fill in a Schedule C to report the income and deduct related business expenses. If within certain limits, a Schedule C-EZ can be filed (if using a computer program fill in the Schedule C information and if qualified for the C-EZ that is what will print).

He will have to fill in a Schedule SE and report his net business income and pay both the employee and employer shares of Social Security and Medicare taxes. The line-by-line instructions on the form are fairly straightforward and tell you what numbers get transferred to the 1040 itself (and where).

As far as paying Estimated, a lot depends on the withholdings and what additional taxes may be due.

I would strongly suggest going to a professional tax preparer for the 2010 return. I found that when I picked up a new client I would often amend prior year returns to get them money back because they had not done things properly. The professional should know what questions to ask, and the knowledge you gain can be used for preparation of 2011 (and subsequent) returns.

And if you go to a service such as Liberty, Jackson-Hewitt, or Block be sure that you get someone who has worked for more than one tax season; they will tend to be more knowledgeable than first-timers.

Mike (CPA Retired)

 

[mafibisha]

He will need to fill in a Schedule C to report the income and deduct related business expenses. If within certain limits, a Schedule C-EZ can be filed (if using a computer program fill in the Schedule C information and if qualified for the C-EZ that is what will print).

He will have to fill in a Schedule SE and report his net business income and pay both the employee and employer shares of Social Security and Medicare taxes. The line-by-line instructions on the form are fairly straightforward and tell you what numbers get transferred to the 1040 itself (and where).

As far as paying Estimated, a lot depends on the withholdings and what additional taxes may be due.

I would strongly suggest going to a professional tax preparer for the 2010 return. I found that when I picked up a new client I would often amend prior year returns to get them money back because they had not done things properly. The professional should know what questions to ask, and the knowledge you gain can be used for preparation of 2011 (and subsequent) returns.

And if you go to a service such as Liberty, Jackson-Hewitt, or Block be sure that you get someone who has worked for more than one tax season; they will tend to be more knowledgeable than first-timers.

Mike (CPA Retired)

Thank you SO very much Mike, appreciate your expertise!

As far as paying estimated taxes, thats optional? It isn't a requirement but possibly helpful? What do you mean by "depends on the withholdings and what additional taxes may be due". Do you mean regarding our other income?

Again, many thanks!!

 

[disneychrista]

There is no such thing as a 1099 employee. If he is an employee he must be paid as such, with taxes being withheld & paid by the employer. Only independent contractors can be paid as 1099.

Take a look at This IRS Link for information on whether he is legally an independent contractor.

 

[LadyBeBop]

If the amount of your net Schedule C income is less than $434, you will not be liable for the Social Security/Medicare/Self Employment tax.

As for making estimated tax payments, it may not be a bad idea. Come tax time, if you don't have enough withheld or do not make enough estimated payments, you may be liable for an estimated tax penalty. If you receive a refund last year, you should not have an estimated tax penalty this year. But it's something to take into consideration in future years.

 

[Cheshire Figment]

As far as paying estimated taxes, thats optional? It isn't a requirement but possibly helpful? What do you mean by "depends on the withholdings and what additional taxes may be due". Do you mean regarding our other income?

When I have clients with both income subject to withholding and income (such as self-employment) not subject to withholding I look at their overall picture.

For you, first will you be receiving a refund this year or owing money?

If you are receiving a refund you may not need to file Estimated.

You can adjust (increase) the withholding from your regular employment to cover thy additional income and not have to pay estimated.

The "safe harbor" related to avoiding the penalties for Underpayment of Estimated are that the amount paid in (withholding and estimated) is at least 90% of the current year's tax or that it is at least 100% of the prior year's tax.

You you may need to do nothing, increase amounts withheld, or make Quarterly Estimates.

 

[mafibisha]

Sorry - double post

 

[mafibisha]

If the amount of your net Schedule C income is less than $434, you will not be liable for the Social Security/Medicare/Self Employment tax.

As for making estimated tax payments, it may not be a bad idea. Come tax time, if you don't have enough withheld or do not make enough estimated payments, you may be liable for an estimated tax penalty. If you receive a refund last year, you should not have an estimated tax penalty this year. But it's something to take into consideration in future years.

When I have clients with both income subject to withholding and income (such as self-employment) not subject to withholding I look at their overall picture.

For you, first will you be receiving a refund this year or owing money?

If you are receiving a refund you may not need to file Estimated.
You can adjust (increase) the withholding from your regular employment to cover thy additional income and not have to pay estimated.

The "safe harbor" related to avoiding the penalties for Underpayment of Estimated are that the amount paid in (withholding and estimated) is at least 90% of the current year's tax or that it is at least 100% of the prior year's tax.

You you may need to do nothing, increase amounts withheld, or make Quarterly Estimates.

We DID receive a refund last year and likely will this year, too.
I should clarify that his 1099 income is less than 4K - I think.
DH doesnt think its enough to make a difference either way...
others in his field have picked up 1099 work over the years and it wasn't an issue. I however, want to avoid any penalty whatsoever.

In 2011 his 1099 income will likely increase.
(Hopefully his *real* job's income will increase too!!)

If we did do the estimated tax, is there a time schedule or system for payment?

Thanks again!

 

[Cheshire Figment]

I would suggest getting TurboTax (the stand-alone) program because it will carry important information forward from year to year.

It will automatically decide if you need a Schedule C or the C-EZ and will automatically handle the Self-Employment (Social Security and Medicare) tax.

Also it will let you know if you need to do Estimated; if so how much when, and where to make payments.

 

[seashoreCM]

What is your total tax? This is before you figure in withholdings to find out you really get a refund.

You probably can't answer that question until April 14, or maybe a little sooner if you are in the habit of filing early.

Take that number, divide by four, round to the next dollar and that is your estimated tax also due on April 15. Again for June 15, September 15, 2011 and January 15, 2012. (These payment dates are not equally spaced). This avoids penalties but does not guarantee you won't have to pay more on April 15, 2012 for the 2011 tax year. This follows the formula for "100% of the prior year's tax".

If you are paranoic that you may have made a mistake in your 2010 return, you may add a little more to each estimated payment. If you really don't want to have to pay more on April 15, 2012, you will need to do somewhat more complicated arithmetic.

 

[sam_gordon]

I've been picking up 1099 work for the last five-six years. Not a lot, probably less than 5K each year. This is in addition to my full time job.

MY understanding is since my full time job withholds enough taxes (we get refunds 99% of the time), that takes care of my quarterly payments.