I work for a company as an independent contractor, and I am trying to do my taxes, both for 2011 and for the first quarter of 2012. I have no idea what I am doing (yeah I saved it for the last minute!) I have Googled and read all the IRS pages and I am still confused. Can anyone help?
For my 2011 taxes, I am not sure which forms I need to file. Basically, I am an independent contractor and don’t get any taxes taken out of my paycheck. I started filling out 1040 and I am not sure where to put my income. I have a form 1099-MISC from my employer. Do I put that amount as wages and tips? Also:
[ul]
[li]I thought I had to fill out Schedule SE (self employment tax) but as I read through the lines, nothing looked like it applied to me. Do I need to fill out Schedule C?[/li]
[li]I donated a car last year to a charitable organization, how do I deal with that? [/li]
[li]I have an individual health insurance plan with a high deductible, can I do anything with that?[/li][/ul]
Regarding paying taxes quarterly, I understand that I have to report my income and pay taxes quarterly. What form do I use to do this? Can I somehow deduct my health insurance expenses?
Any help that anyone can provide is so appreciated!
My husband is self employed so our taxes are also somewhat complex. We have used Turbotax with good results. You can do it online, its easy, and I believe it was less than $100. I think is is well worth the money to know it is right. I know we have the Schedule C and the SEP.
We have, in the past gone to H&R Block or similar, but they overcharged, in my opinion. Try the Turbo tax, at the end, if you think it is too much, you just don’t buy it. It took me about an hour or so to do it, so, quick, easy, and cheap, yay!
You can deduct the cost of TurboTax as a business expense. I use TaxAct, which is just as good, and free.
In general, you have to fill out Schedule C. The amount on the 1099-MISC goes there. You can then deduct any legitimate business expenses.
If you earn more then the a set amount (IIRC, $400, but that may have changed), then you fill out the 1040-SE for self-employment tax.
I believe the lines to deduct the health insurance when you’re self-employed are on the regular 1040. That’s also where you’d put the charitable deduction – but you’ll need a value for it that you can back up.
Estimated tax is paid via the 1040-ES form, which you file quarterly. Since you did not file it in 2011 (the last installment had a deadline of January 15, 2012), you’re in a hole and may have to pay penalties. You can fill out the first quarter 2012 estimated tax now; it’s due April 15. You can’t deduct health insurance until you fill out next year’s return.
So I am filling out Schedule C (Net Profit From Business Sole Proprietorship) and on line 5b it asks for “Of the total number of miles you drove your vehicle during 2011, enter the number of miles you used your vehicle for: Commuting.” The instructions state that “Generally, commuting is travel between your home and a work location.”
Does this mean I can put down the mileage I drive to and from work each day? I drive 21 miles to and from work each day (42 miles total each day).
I think $100 for TurboTax would be beyond my budget at this time… Maybe I will try Tax Act, or maybe I will keep trying to figure out how to do it on my own
Commuting: please read the regulations. I think if you head to the same place every day, it is not deductible. the IRS may ask so that you can subtract it from your actual business expenses. If you go from that site to another work site, that part may be deductible. If your “home base” is your house, a deduction could work. But please check with the publications.
IIRC, High Deductible plans have no tax implications, beyond normal medical expenses (if they’re greater than 7.5% (!!!) of your income). However, a HSA might be worth opening in the future, which can get you tax savings.
If neither you nor your spouse were covered by a subsidized employer plan at work, you can take an above-the-line deduction (an adjustment to income) on line 29 of your Form 1040 for health insurance premiums. You don’t have to itemize and the deduction is not subject to the 7.5% limit. However, it cannot exceed your net profit from self-employment. See the instructions for Line 29 (pdf).
I have just spent the past 30 minutes trying TaxAct and I think you’re right that it’s crap.
Regarding commuting, again I think you’re right that I can’t deduct my mileage. However, it pisses me off that they describe it as “commuting” on the form and describe it as commuting between home and work, because it’s very confusing.
I am still struggling with my taxes Why is this so confusing? Why isn’t there a site out there that explains it clearly? :mad:
I looked at the instructions for Line 29, and it says" The insurance plan must be established under your business." Well, first I don’t have a “business,” and my health insurance is not under my “business,” it’s just an individual policy under my name. And I had the health insurance policy before I started my job as an independent contractor. Does this mean I cannot deduct my health insurance? I am so confused.
Also the IRS page says that: “The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business.
–For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual.”
Ok, so the health insurance is in my name, so can I include it on Line 29? Also I was only employed for 2 months in 2011 (November and December), so would I only include my premiums for those two months, or for all of 2011?
The same as a non-self employed person would.
You claim an itemized deduction on Schedule A. If the deduction is more than $500, you also need to fill out Form 8283 and attach a statement (such as Form 1098-C) from the charity.
You don’t actually have to report income quarterly, you just have to make payments quarterly. Form 1040-ES has worksheets in the instructions and has payment vouchers attached.
Hint: Sign up for EFTPS. It will allow you to make your quarterly (and other payments) online without bothering with checks and vouchers.
You have three ways of determining how much to pay quarterly.
Take 100% of your 2011 tax (or 110% if you 2011 AGI was over $150,000) and divide by 4. Mail that in quarterly.
Take 90% of your anticipated 2012 tax (if you are able to predict it), divide by 4, and mail in quarterly.
Figure your annualized tax every quarter and mail that it (see “Annualized Installment Method” in Publication 505 (pdf)).
You can use whichever of the above three numbers results in the lowest payment.
Don’t panic if you underpay, the penalty is relatively trivial now that interest rates are so low.
Remember that a “quarter” for estimated tax purposes is not necessarily 3 months.
If you have a spouse, are filing jointly, and your spouse has a regular paycheck with withholding, add up your spouse’s anticipated withholding for 2012, divide by 4, and subtract that from your quarterly payment.
The amount I paid in health insurance premiums in 2011 far exceeds my income. So when you say, not to exceed my net profit, what exactly does that mean.
For example (these are not exactly my real numbers, but pretty close for the example): Let’s say I paid $3,000 in health insurance premiums, but I only made $1,000 in total income. How would I work that?
If your total income from all sources is in the neighborhood of $1000, you aren’t going to owe any income taxes (just the self-employment tax) regardless of what you put down, so you may as well not bother with any deductions for health insurance.
If you meant that you had $1000 from self-employment but you also had income from other sources in addition to that:
Your net profits are line 4b from Part B of Schedule SE if you are using the optional method and made an entry on line 4b. Otherwise, they are line 31 of Schedule C or line 3 of Schedule C-EZ. If this number is less than the amount you paid for insurance, just put this number down on line 29, not the full amount you paid for insurance.
Yes that is correct, I was unemployed for the rest of the year… So I can’t deduct my health insurance costs from my self-employment tax? I am actually surprised that I still apparently am going to owe like $120 in self-employment tax on such a low income. I paid more than I made in health insurance, and I am still going to owe them money?
Now I am really scared to calculate what I owe for the first quarter of 2012. And I can’t deduct my medical expenses until the end of the year? I have paid over $2,000 out-of-pocket for my insurance deductible so far, as well as about $350 a month in premiums (plus copays)… and I can’t deduct that from the payment I will have to make for 1st quarter? Shit shit shit!! :eek:
I think is very likely you are going to make a mistake that will exceed the $75 cost of Turbo Tax Home & Business, which will calculate everything for you.
Why is this so confusing? Why isn’t there a site out there that explains it clearly? :mad: