I just accepted a position as an independant contractor to a company here in Sili Valley. This is my first time working as an IC and I was told that it will be my responsibility to withhold all relevant taxes. Let me just say that I am not an accountant and have no idea how to figure out how much that would be. Is there a general rule of thumb percentage I can go by or do I have to go talk to a tax accountant or some other such professional? I’d rather not pay for that since this IC gig is only going to last a couple of months.
Any help will be appreciated.
I’ve never been an IC before but I DO know that you have to pay 15% for Social Security. normally you only pay 7.5 and your employer pays the rest but since you work for yourself you have to pay it all. you’ll also have to send in your taxes at least quarterly or probably pay penalties. that;s all Fed stuff the states will be different.
You’ll need to file form 1040ES (Estimated Individual Income Tax) on a quarterly basis. Self-employment tax is 15.3%. Tax tables and forms are available at any federal building, or you can download them from here:
Just a thought here - when I was independent (pre-incorporation), I kept a savings account into which I deposited all earnings, and nothing else. It cost me nothing and made it easy to track income.
I am an IC. If you are making more than 50K annually in your new position find a good accountant and incorporate as soon as possible. The few hundred dollars to incorporate and the 500. to 1500 or so annually (depending on how complex your return is) the accountant will cost you will be peanuts compared to what you can/will save by taking your income as a corporation.
I would like to second astro’s suggestion. Especially if your business is complicated, i.e., lots of purchases and billings and the such. Probably could hire a CPA firm or bookkeeping service for $100 or less a month (you’d have to probably sign a retainer agreement). They would be responsible for preparing you a set of books monthly (which your bank will need if you need loans for any equipment or such), any monthly tax forms you need (such as sales tax), your quarterly tax forms (such as payroll tax reports, etc.), estimate how much you need to pay in estimated taxes each quarter, and possibly even get your tax return thrown in for the same price.
If you don’t need that much, you could have them do it on a quarterly basis. Just depends on what your needs are.
When I worked in public, our meat was tax returns but the gravy was monthly work and were always eager to help someone like yourself without charging an arm and a leg. We knew that as we helped you grow, you became a bigger client with a bigger fee.
Thanks for the suggestions. I don’t think I need to hire an accountant just yet because I’m making less than 60K and this will not last longer than three months. Others have told me to calculate the percent of withholdings from my last job (almost equal salary) and withhold that percentage from the new paychecks and deposit it into a savings account. This seems logical to me but I’m no expert.