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View Full Version : Completely Lost on Taxes (1099 Form)



jamestl2
01-03-2011, 12:57 AM
Hey guys, I had finally found work! Which is why I haven't been around as much recently, been fairly busy with the job, and it deals with Wordpress Development, just what I want to do (It's part-time, but it's better than nothing.).


Now I believe I have a new dilemma, how to deal with taxes.

When I first signed up with the company, I had to turn in a 1099 "Independent Contractor" form. I asked my company's accountant and she said this is something that we all handle ourselves.

So now basically I need to know the following:
1) How do I figure out how much I owe? (So far I've made in between $1400 and $1500 for 2010. And the only work was for their company.)
2) Whom do I contact and how am I supposed to get a hold of them?
3) Does the gov't basically just send you a "bill"? Then I just end up paying that amount?
4) How often do I have to pay? Every April?
5) Any other important tax aspects I'm missing out on? (I'm sure there probably are, but I can't think of them.)

These are probably all newbie questions, but I've never done this before!

vangogh
01-03-2011, 11:11 AM
How you fill out taxes depends on what kind of business entity you are. I don't really know how it works for corporations, but I can share how it works for a sole proprietor, which is what I assume your business entity is.

As a sole proprietor I just fill out a 1040. I can't use the 1040EZ anymore, but I use the regular 1040. On the 1040 there's a question about business income. You use the 1040 schedule C to calculate your business income. It has fields for revenue as well as business deductions. You'd list the money you earned through the 1099 on Schedule C as part of your business income. The company should send you a copy of the 1099 which you would also attach to your tax forms.

The 1040 also has a place for the usual W2s you'd file on the 1040EZ. In fact the 1040 is still a personal tax form. As an sole proprietor you're still filing as an individual as opposed to a business. The main difference is that some or all of the income you report comes from something other than the usual W2 so you need additional forms to compute your income.

As far as estimated taxes go you're supposed to pay them 4 times year. April, June, September, January. How much depends on how much your business makes. There's a 1040 ES form for estimated taxes. The form has a quick calculation for how much you'll likely owe overall for the yea and you would typically pay 1/4 in each of the 4 months. You could adjust your payments based on how well your business is or isn't doing throughout the year. If you're making more than you thought you can pay more in estimated taxes. If making less you can adjust to pay less.

Once you've stated paying there are some rules. I think you have to pay next year at least what you paid this year or something like that. In the end you're really just trying to cover what you're going to owe in April. Once you've done the taxes for a year or two it becomes easier to predict how much you'll likely owe and so know how much to pay each quarter.

Hope that helps.

Evan
01-03-2011, 11:16 AM
You'll receive a 1099 in the mail along with any other tax documents, such as dividends, bank interest, wages from a job, etc.

This income will be reported on Schedule C or Schedule C-EZ. If you have any business expenses, notably any business use of your home, business use of your cellphone, automobile, etc., etc. -- those can be deducted. The bottom line number becomes your "net profit" and that amount is subjected to self-employment taxes PLUS your regular income tax rate.

If you wish to be safe, a general rule of thumb is to expect about 30% of every dollar that comes in to go to taxes... It may be much more, or less, depending on a lot of individual factors.

If your balance due at the end of the year is $1,000 or greater, you should be making estimated tax payments. States often have a much lesser threshold, but the methodology is the same.

On $1,500, expect to pay about $212 in self-employment taxes, plus whatever your ordinary income tax rate is on that $1,500. For someone in the 15% bracket, that would be $225. Of course your actual income tax will be much different, as it is affected by any adjustments to your Adjusted Gross Income, and personal exemptions you're entitled to, and generally the larger of your itemized deductions or the standard deduction.

jamestl2
01-03-2011, 02:57 PM
OK, I think I got the two mixed up, I believe it's the company that deals with the 1099, as I'm an employee of that company, not an employer. So would I be looking to fill out a 1040 form then? And the income tax rate is still the same?

What I had sent them at the beginning of the job was a W-9 form, telling them I'm an independent contractor, I think. And they are the ones that deal with the 1099, where they send me a copy telling me how much I earned.

And I have no idea about deductions as well. All I use for my job is my computer and internet access (from home).

vangogh
01-03-2011, 03:57 PM
Yep they'll fill out the 1099 and they should send you a copy. It's similar to them sending you a W2, except you include it in a different place on your tax forms. Tax rates should still be the same. However you will be able to deduct some things you couldn't before and there will be a new tax to pay, namely the self employment tax. It's your contribution to social security. Unfortunately you now get to pay that twice since you're both employer and employee.

Technically every client you have should be filling out 1099. Most won't. Also if the work you do for one client is less than $600(?) for the year no 1099 is necessary.

When it comes to deductions you probably have more than you realize. Internet access certainly counts. Do you have a phone line dedicated to business? Your computer probably won't qualify since I'm guessing you had it before the business. Future computers can be deduction. In fact the current one probably can too, though Evan would know better than I do how to go about it. Form 4562 is the depreciation for for things like computers.

Do you own your home or rent one? If so is there a specific area of your home used exclusively or close to exclusively for business, maybe a home office? If so you'll be able to deduct a % of some of your utilities as part of them are going toward your office. Use form 8829 for home deductions.

Next time you buy a WordPress theme it's a deduction. Do you buy computer books? Magazines? Likely all deductible since they help you with your business.

Some of this stuff took me a couple or three years to figure out. Start with the 1040. You won't get very far before you have to go to the 1040 schedule C. The schedule C will lead you to some other forms.

jamestl2
01-03-2011, 05:33 PM
OK, thanks for the info Steve, sucks you have to pay SS double, not sure how much that's going to be.

Also, this is mostly for the company I work for, not for my business Engipress, the two aren't related. And I haven't really made much off my business to be taxed on it (far less than $600), as most of my time has been focused on working for the company.

Concerning deductibles, I'm not sure how much of those you listed can actually be deducted, as right now I'm still living at home, and my parents primarily paid for those things. (Haven't purchased anything like WP Themes or anything for the company, don't think I'll need to.)

And I've got student loans to pay back, that's where the majority of my income is going to go.

vangogh
01-03-2011, 11:08 PM
I think your student loans are deductible. Don't hold me to that, but I'm pretty sure they are.

Yeah I thought you might still be living at home in which case you couldn't deduct the home expenses. Then again not having home expenses is worth more than the taxes you would save.

The self employment tax is always more than I expect it to be. Sucks to have to pay it twice, but I understand why I have to pay on both sides.

Evan
01-04-2011, 09:08 PM
Future computers can be deduction. In fact the current one probably can too, though Evan would know better than I do how to go about it. Form 4562 is the depreciation for for things like computers.

You could depreciate "used" equipment based on it's fair value on the date placed in service.


Concerning deductibles, I'm not sure how much of those you listed can actually be deducted, as right now I'm still living at home, and my parents primarily paid for those things. (Haven't purchased anything like WP Themes or anything for the company, don't think I'll need to.)

And I've got student loans to pay back, that's where the majority of my income is going to go.

"Rent" paid to your parents won't be deductible. Student loan INTEREST is generally deductible assuming your income qualifies you. Your loan lenders should provide you a 1098-E with this information. If they don't try logging into their website. Some providers, like Sally Mae, won't send them out unless student loan interest is in excess of $600/year.

Also, if you believe you are an EMPLOYEE of this company and not a contractor, then you may have been misclassified. There are tests to determine whether you are an employee vs. contractor, and it's possible to get a determination. (Keep in mind if the government makes this determination on your behalf, you are very likely to be "fired".)

jamestl2
01-05-2011, 05:18 PM
I pay roughly $250 a month in student loans (three loans total to two various lenders, MyGreatLakes and MyFedLoan), so whether that's "deductible" or not, I don't know. Haven't received any tax forms from them or anything yet.



Also, if you believe you are an EMPLOYEE of this company and not a contractor, then you may have been misclassified. There are tests to determine whether you are an employee vs. contractor, and it's possible to get a determination. (Keep in mind if the government makes this determination on your behalf, you are very likely to be "fired".)

I know I'm not legally an "employee", I was just trying to make the distinction that I wasn't an "employer" of the company. Perhaps I should have used the term "contractor" in that instance.

Evan
01-05-2011, 06:25 PM
I pay roughly $250 a month in student loans (three loans total to two various lenders, MyGreatLakes and MyFedLoan), so whether that's "deductible" or not, I don't know. Haven't received any tax forms from them or anything yet.

The $250 a month is not deductible in itself. The interest component is. Say that $250 is based on a $10,000 balance. You make your $250 balance, but only $200 may go to principal the first month, and $50 to interest. You now owe $9,800. Make your next $250 payment, and now $201 goes to principal, and $49 goes to interest. [NOTE: There is an amortization schedule of this.] At the year end, your tax-deductible interest may be as much as $99 in this case ($49 + $50). Your loan company should be able to specify exactly how much interest was paid.

The $99 would be deductible in full if your income is low enough. There is a phase out of the deduction. But luckily, it is on page 1 of the 1040, so you do not need to itemize to deduct student loan interest.