What do i need to know to pay my taxes this week?
September 7, 2012 10:02 AM Subscribe
Just started as an independent contractor - and I just got married. Self-Employed Taxes are due in ten days! Please help me figure out what I need to know!
So I started work in August. I live in Michigan and the person I am subcontracting for is in California. I see on the IRS website that the quarterly payment of estimated taxes is due September 17.
I'm doing instructional design, working about 7 hours a week. So far I've earned about $1000 for my work in August. From January through June, I was a graduate assistant at a university. I earned about $1000/month while working there. My spouse of one month has a full time job and earns about $2000 a month.
my questions:
1. Is there any sort of registration / start-up stuff I have to do - like, getting some sort of self-employed ID number or something?
2. Can I deduct my internet bill? Can I deduct my phone bill?
3. My spouse of one month has a full time job. Will it be better for us to file jointly or separately? If we file jointly, do I need to figure that stuff out now, or can it wait for next march?
4. Do I have to worry about my previous employment income when I do these taxes?
5. Do I have to pay self-employed taxes to the state of Michigan right now, or can that wait until when I file my federal and state taxes?
So my understanding of what I need to do right now is to fill out form 1040es and mail a check to the IRS by September 17th. Is that all I have to do right now, or is there other stuff to?
Also, any book recommendations about what you can and cannot deduct when you're an independent contractor would be appreciated! Thanks everyone!
So I started work in August. I live in Michigan and the person I am subcontracting for is in California. I see on the IRS website that the quarterly payment of estimated taxes is due September 17.
I'm doing instructional design, working about 7 hours a week. So far I've earned about $1000 for my work in August. From January through June, I was a graduate assistant at a university. I earned about $1000/month while working there. My spouse of one month has a full time job and earns about $2000 a month.
my questions:
1. Is there any sort of registration / start-up stuff I have to do - like, getting some sort of self-employed ID number or something?
2. Can I deduct my internet bill? Can I deduct my phone bill?
3. My spouse of one month has a full time job. Will it be better for us to file jointly or separately? If we file jointly, do I need to figure that stuff out now, or can it wait for next march?
4. Do I have to worry about my previous employment income when I do these taxes?
5. Do I have to pay self-employed taxes to the state of Michigan right now, or can that wait until when I file my federal and state taxes?
So my understanding of what I need to do right now is to fill out form 1040es and mail a check to the IRS by September 17th. Is that all I have to do right now, or is there other stuff to?
Also, any book recommendations about what you can and cannot deduct when you're an independent contractor would be appreciated! Thanks everyone!
Stress ye not.
1) Your Social Security Number *is* your "self-employment ID" unless/untli you decide to get an EIN -- Employer ID number. I've operated my business for 11 years as a sole proprietor and have had no need to get an EIN.
2) Don't worry about deductions -- you do that when you fill out the Schedule C (profit and loss form for your "business") that goes with your 1040. Do keep track of any expenses that are business related. Read IRS Publication 583 to get a handle on that, but for estimated taxes, you don't figure any deductions.
3) You don't have to worry about your husband's income when you're filling out your quarterly estimated taxes...for now. I'd encourage you to sit down with an accountant or financial planner to strategize, longer-term, but the amount of money you're talking about now is tiny.
4) Your quarterly estimated self-employment income is exactly that -- income from self-employment. If you fear that not enough tax was deducted from prior employment that you'll end up owing a fine (which would likely be miniscule, given the numbers you're quoting), you could pay a little extra in your September's estimated taxes, but you really don't need to stress about this.
5) I'm afraid I can't help you with Michigan's tax structure. If you haven't registered an actual business, with a business license, you should check to see if you're required to do that in your municipality. Where I operate, I need two business licenses, one for the city and one for the county, but because I provide a service and not a product, I only pay an annual business tax based on in-state revenue from my services (for the county and for the city); there are no quarterly taxes for me, not even sales & use taxes, because I have no tangible product.
A good book to start with is Minding Her Business by Jan Zobel. It's a classic.
I encourage you to find your nearest Small Business Development Center office. They provide (usually free) counsel on issues related to business start-ups, and working as an independent contractor need not be stressful, but having someone walk you through easily-missed steps might be more comforting than solely reading books. (But reading is good!) And yes, you'll want to consult an accountant. But don't freak out; many people misjudge how much to pay for their quarterly estimated taxes, especially early on.
posted by The Wrong Kind of Cheese at 10:21 AM on September 7, 2012 [2 favorites]
1) Your Social Security Number *is* your "self-employment ID" unless/untli you decide to get an EIN -- Employer ID number. I've operated my business for 11 years as a sole proprietor and have had no need to get an EIN.
2) Don't worry about deductions -- you do that when you fill out the Schedule C (profit and loss form for your "business") that goes with your 1040. Do keep track of any expenses that are business related. Read IRS Publication 583 to get a handle on that, but for estimated taxes, you don't figure any deductions.
3) You don't have to worry about your husband's income when you're filling out your quarterly estimated taxes...for now. I'd encourage you to sit down with an accountant or financial planner to strategize, longer-term, but the amount of money you're talking about now is tiny.
4) Your quarterly estimated self-employment income is exactly that -- income from self-employment. If you fear that not enough tax was deducted from prior employment that you'll end up owing a fine (which would likely be miniscule, given the numbers you're quoting), you could pay a little extra in your September's estimated taxes, but you really don't need to stress about this.
5) I'm afraid I can't help you with Michigan's tax structure. If you haven't registered an actual business, with a business license, you should check to see if you're required to do that in your municipality. Where I operate, I need two business licenses, one for the city and one for the county, but because I provide a service and not a product, I only pay an annual business tax based on in-state revenue from my services (for the county and for the city); there are no quarterly taxes for me, not even sales & use taxes, because I have no tangible product.
A good book to start with is Minding Her Business by Jan Zobel. It's a classic.
I encourage you to find your nearest Small Business Development Center office. They provide (usually free) counsel on issues related to business start-ups, and working as an independent contractor need not be stressful, but having someone walk you through easily-missed steps might be more comforting than solely reading books. (But reading is good!) And yes, you'll want to consult an accountant. But don't freak out; many people misjudge how much to pay for their quarterly estimated taxes, especially early on.
posted by The Wrong Kind of Cheese at 10:21 AM on September 7, 2012 [2 favorites]
This is advice that was given to me by my accountant, who is not your accountant and is in a different jurisdiction, but - when I stopped working for a company mid-year and began independent consulting/self-employment, he told me that I did not need to file estimated taxes the first year unless I was making a massive amount of money (ie, more than my net income the previous year from employment). The purpose of estimated tax payments is to replace the deductions that an employer would normally take out of your paycheck, and is generally based on how much tax you owed the previous year. Since you presumably had a job with an employer last year and you do not yet know how much you will make from self-employment this year, it's hard to estimate how much you'd need to send in, and you may not owe anything at the end of the year anyway, given the numbers you've quoted here.
Shorter answer: consult a CPA, go ahead and set aside some of your income in anticipation of possibly owing tax when you file your full 2012 returns, but you don't necessarily need to file estimated taxes now. (Federal only, not familiar with Michigan requirements.)
posted by bedhead at 10:28 AM on September 7, 2012
Shorter answer: consult a CPA, go ahead and set aside some of your income in anticipation of possibly owing tax when you file your full 2012 returns, but you don't necessarily need to file estimated taxes now. (Federal only, not familiar with Michigan requirements.)
posted by bedhead at 10:28 AM on September 7, 2012
I am also new to the IC world and have been talking to, and retaining the services of, a CPA. My CPA has me going the S-Corp route to prevent double taxation. Not sure if you get affected by that or not. It really is helpful to at least talk to someone in the know and lay out your situation. Most of them (all the ones I called) were willing to take a phone call, listen to your situation and make recommendations.
I spent quite a bit of time reading things on the web and each time I thought I had a break through I found myself with more questions.
As for the deduction of web and phone, you can probably get away with a percentage of the bills being deducted but not their entirety. Again, make some calls and you will find a friendly CPA out there willing to listen.
Good luck with it, and congrats on the nuptials !
posted by a3matrix at 2:29 AM on September 14, 2012
I spent quite a bit of time reading things on the web and each time I thought I had a break through I found myself with more questions.
As for the deduction of web and phone, you can probably get away with a percentage of the bills being deducted but not their entirety. Again, make some calls and you will find a friendly CPA out there willing to listen.
Good luck with it, and congrats on the nuptials !
posted by a3matrix at 2:29 AM on September 14, 2012
This thread is closed to new comments.
I don't know of any CPAs in Michigan, but maybe someone else will have a recommendation.
posted by China Grover at 10:15 AM on September 7, 2012