My wife is a freelance writer, and she has lots of 1099s. I do a schedule C for me for my tutorial income. We use Turbo Tax deluxe which is about $55, mostly for the state part, but the normal one might be good. They have a free program on their web site but I don’t know if it would handle a Schedule C.
Think of he Self Employment Tax as Social Security, except you are stuck with your payments and what would be your employer’s payments if you had one.
The logic behind commuting is that going to your office is not deductible. If you go further for a particular job the extra miles are. If you commute 20 miles to work, and go to a job site 40 miles away, 20 are deductible. If you go to one 10 miles away, nothing is deductible. I trust you have a mileage book if you ever do this.
If you might make a lot this year as an independent contractor, remember to compute your estimated taxes. $1,000 or even $2,000 isn’t going to trigger them, I think, but you should do the calculation to be sure. (Turbo Tax does it for you.)
I don’t know anything about how health insurance is handled.
I got convinced when frustrated at my state return, I decided to upgrade to a version of TurboTax that did the state one - and found out I was just about to pay California about $300 more than I had to.
Deluxe has been more than adequate for us. I’m sure Home and Business is better if you have employees and such.
I agree. I have an accountant these days, but for the first five or so years I used Turbo Tax Business (or whatever the heck the recommended one was for self-employed folk), and it made doing the taxes stress-free and a snap, and flagged deductions I would have otherwise forgotten about. It’s totally worth the price and for the peace of mind.
So, if i purchase Turbo Tax, will it also do my quarterly taxes for the same $75 fee?
I am so frustrated because I have filled out all the forms and I am coming up that I owe like $130 on an income of just over $1,000 for the year, when I had over $5,000 in health insurance premiums and deductibles and copays. How could this be??
Thank you to Fear Itself, Voyager and pulykamell for your advice about TurboTax. I am thinking that I will go ahead and get it because I am getting seriously frustrated… usually I can figure out these types of things pretty easily, but the difficulty I am having in trying to find clear information is driving me crazy. I am freaking out about how much I am going to owe for this first quarter and going forward.
Given the numbers you’ve given us, your quarterlies should not be that much, if you have to pay them at all. If your 1099 income is just $1000 for the year, you won’t even need to pay any quarterlies, so far as I understand it. You’re only required to pay quarterly if you’re going to owe the IRS more than $1000 at the end of the tax year. Somebody correct me if I’m wrong, please.
By quarterly taxes do you mean estimated payments?
It prints out vouchers based on your current return, after asking you to estimate your income. But you can redo this at any time. It allows you I think 3 returns - we use it for our kids. Since few people use them up, maybe you can find a friend with an extra one, if you don’t mind putting your income on his computer.
The question is what is the basis for income on which the self employment tax is calculated? I can look it up on our return, since my wife pays it. I think it might well be on gross income before deductions, but I’m not positive. My Social Security cap is on my gross wages, and has nothing to do with deductions. The reason I don’t know for sure is that TurboTax does it.
Unfortunately, your health insurance costs will have no effect on your self-employment taxes. If you had owed any income tax, they would reduce that, but not your self-employment tax. Sorry.
The self-employment tax is what you and your employer would have paid in Social Security and Medicare taxes if you had been employed. People who have regular W-2 jobs have that taken out of their salaries before they see any money.
By the way, if you received any unemployment compensation payments in 2011, those are taxable and should be reported on line 19 of Form 1040.
As far as your estimated taxes for 2012: Remember the three rules I gave you above? Your total 2011 tax is going to be $120 (or whatever line 61 on your 2011 Form 1040 says). The first rule says divide this number by 4. So all you have to pay in estimated taxes is $30 per quarter. Seriously. Even if you win the billionaire lotto in 2012, your estimated tax payments are going to be $30 per quarter.
And if you don’t want to bother writing 4 small checks, you can just send $120 with Voucher 1 of Form 1040-ES by April 17 and be done with it. Heck, you can skip making the payments altogether and the penalty will be in the neighborhood of $2.50 (unless interest rates shoot up dramatically over the next year).
BUT, and this is important, if you only make $120 in estimated tax payments during the year, you will end up owing a lot of money early next year when you file your 2012 tax return. You won’t owe any interest or penalties if you make the $120 in estimated payments, but you will have to make up the difference by April 15, 2013. So be sure to put aside enough money to pay for it.
I wouldn’t waste my money on tax software. You have a really simple situation. You don’t owe any income tax. You owe $120 in self-employment tax. Even if the tax software found some obscure loophole that cut this in half, you would still be $15 in the hole after you paid the $75 for the software.
You won’t regret it.
Some tips from my wife - keep good records. She keeps anything that might be an expense in Quicken, and goes over it before we do our taxes to summarize her expenses. When we first moved here we used an accountant who gave her advice on what is deductible for writers, but we found he was expensive and wasn’t doing much, so TurboTax was cheaper. There are a whole bunch of expenses that might be deductible for you as a contractor which would not be as an employee, but that depends on what you do.
One urgent hint - you might be tempted to take off a home office. Beware. It turns out that the percentage of your house that counts as an office is the percentage of any money you make selling your house that is considered capital gains. It is also an audit flag, but my wife’s office could pass any test. We got hit with the capital gains when we sold our house in NJ and stay away from it now. Might not be an issue for you, but it is a gotcha.
If her total tax for 2012 (minus any withholding in 2012, which doesn’t apply if she is self-employed) is less than $1000, then she is not required to make any estimated tax payments during 2012. Since she worked only two months in 2011, I am hoping she will earn a lot more money in 2012, and consequently owe much more in taxes in 2012. Hopefully more than $1000!
I don’t doubt that you might need software next year, but this year it is just going to tell you what you’ve already figured out. You don’t need software to deal with $1000 in income.
I understand that. But her 2012 estimated tax payments will be based on 2011. If she makes a shitload more in 2012, that’s awesome, but why give the IRS more money than you need to until you need to, unless you don’t have the discipline to put it aside?
Yes, if her 2011 tax is $120, the maximum she will be required to pay is $30 per quarter. Regardless of how much she owes in 2012, she will have to pay no more than $30 per quarter. I explained this to her a couple of messages above.
In your message, you mentioned the $1000 exception to making estimated tax payments. That particular exception is based on her total 2012 tax as shown on her 2012 Form 1040, not her 2011 tax. So if her 2012 tax turns out to be less than $1000, she doesn’t have to make any estimated tax payments. If her 2012 tax turns out to be $1001 or more, she has to make $30 per quarter in estimated tax payments. Even if her 2012 tax turns out to be $1 billion, she has to make $30 per quarter in estimated payments.
I also pointed out that if she just blows off making the estimated payments completely, the penalty will be around $2.50. The IRS won’t even bother sending her a special bill for that amount.
Another vote for TT, you can’t go wrong. I filed a Schedule C for about 10 years along with W-2 income, and it did everything for me. Including calculating the estimated tax payments and printing the vouchers.
It’s well worth the $100 or whatever it is for the peace of mind. And if you use it going forward you’ll find each year gets easier and easier.
Oh, by the way, don’t forget that if you were at least 25 and under 65 and could not be claimed as a dependent by someone else at the end of 2011, you may be able to claim the Earned Income Tax Credit (EITC).
See the instructions for Line 64a or go to http://www.irs.gov/eitc to find out. If you have no children, it would be a maximum of $70.
Alley Dweller, I want to thank you so much for your advice. You must be a CPA, right?
It’s a real bummer that my health insurance costs won’t affect my self-employment taxes
Regarding my 2012 taxes… so let me get this straight: I only have to pay estimated taxes based on my 2011 income, even though my 2011 income was only for 2 months? And even though I know that I will be making much much more in 2012?
So basically, I just need to save up all the money and pay it in April 2013? How do I know what percentage of my income I would need to save? And how would I know what to reduce that by to account for my deductions?
Also, what would happen if I went ahead and sent the IRS what I am pretty sure I would owe?
Thank you Alley Dweller and Carlarm, I don’t know how I missed the EITC. But will this reduce my self-employment tax in any way?
I am still undecided about whether I should get Turbo Tax… it’s $109 for the “home and business” version, which seems to be (and what someone mentioned) needs to be used for independent contractors. I am sure I will need to use it for 2012 taxes, but do I need it for 2011? Since I made so little? Maybe I do need it because of my car donation and my health insurance expenses? Or is that not going to affect what I owe for 2011 in any way (the self-employment tax?) I am still so confused, despite all the great advice everyone is giving.
