Question about contracting

[CadillacMatt 31]

Hey all

Reported a few days ago that I was doing contracting work for a remodeling/furniture company, well since I'm kind of a green horn to all this, I found out that even though I'm working for a company, it's considered self-employment. When I got paid yesterday, there were no taxes taken out... so I was a little worried, I asked one of the guys if I would end up having to pay in a massive amount at the end of the year... and he told me to save all of my receipts for food, gas, tools... he says he even counts beer. Apparently he takes everything to a tax lady he knows at the end of the year and pays her about $250 for her services, and comes out scott-free without paying taxes.

Is this a good example to follow? I mean, I know it's good to save your receipts and all but would it be safer to put aside a percentage of my paychecks every week?

Thanks

Edited April 24, 2010 by CadillacMatt

[Kanaworm$ 292]

Definately save all receipts! That way you can show all expenses and report them and hopefully write them off on next years taxes. Find a good accountant.

[klee7013 10]

this is the way the company i work for does it

12 employees so a big difference but same principle

we pay fedeal taxs on the payroll everyweek

and state we do the month before so we pay for march tax on march 1st

and payroll wekk may1-7 we will pay fed taxes on 10th when we get back in

the point about this is if you do owe money you wont have to find money at the end of the year to pay it

best thing to do is talk to your accountant or go get an accountant and he/she can go over it with you and see whats best for you

good luck

[Impious 1,476]

Yes, you are technically self-employed for tax purposes. Like he said, save all receipts for WORK RELATED expenses. (i.e. Don't keep the receipts for beer/etc, you will have to be able to prove they were actually work related expenses if you ever get audited). Also keep a log of any work related miles you put on your personal vehicle, if you drive it for work.

Whether or not you need to save back money for taxes depends on your tax bracket and how much you will be able to claim as expenses. If you are really worried about it, your best bet would be to consult a tax professional. I personally would save back some money for taxes as a CYA. I personally would save back around 20-25%....but if you claim a lot in deductions it's possible you may not have to pay much if any in taxes at the end of the year.

I'm not sure how long you plan on keeping this job. But keep in mind some creditors will use your tax returns to verify your income if you attempt to get a loan (for a vehicle/etc), and if you can't prove positive net income on your tax return it may exclude you from being able to get a loan through certain creditors. So it's a gray line you have to walk.....claiming as many deductions as possible on taxes to reduce your tax liability at the expense of being able to prove to people you actually make money.

[CadillacMatt 31]

Thanks for the insights, all.

And Impious - I believe I will definitely put aside some scratch to cover my tail, I pulled out the calc and figured my tax bracket, so I will start setting a certain amount aside every week. Hell, if anything, I'll have extra money at the end of the year!

One thing I'm trying to understand... when you save receipts for purchases and whatnot, when you file your taxes you are given a choice to either itemize or accept the Standard Deduction. If the Standard Deduction for my tax bracket is say $7500, and my itemized total is anything less than that, is there any point to itemizing in the first place? Or do I just not understand this right?

I am going to find a tax person to ask, but I figured some of you guys probably have experience with it

Edited April 25, 2010 by CadillacMatt

[Impious 1,476]

One thing I'm trying to understand... when you save receipts for purchases and whatnot, when you file your taxes you are given a choice to either itemize or accept the Standard Deduction. If the Standard Deduction for my tax bracket is say $7500, and my itemized total is anything less than that, is there any point to itemizing in the first place? Or do I just not understand this right?

You're not understanding right

When you are self-employed you will have to file a Schedule C with your tax return. The Schedule C is where you will list your gross receipts (i.e. what you received for pay) and all of your work related expenses (tool purchases, mileage and auto expenses, meals, etc). The difference between what you received in pay and your work related expenses will be your net income (or loss). This net income (or loss) from Schedule C is transferred over to the first page of the 1040 (the "normal" individual tax return form) and is used in the calculation of your "adjusted gross income". This is why many self employed borrowers don't really have to pay any taxes.....they deduct everything they can and show little to no "net income" on the Schedule C.

You will still have the option to take the standard deduction or itemize your personal expenses (percentage of you medical bills, interest and property taxes for real estate, etc) on a Schedule A.

[CadillacMatt 31]

You're not understanding right

When you are self-employed you will have to file a Schedule C with your tax return. The Schedule C is where you will list your gross receipts (i.e. what you received for pay) and all of your work related expenses (tool purchases, mileage and auto expenses, meals, etc). The difference between what you received in pay and your work related expenses will be your net income (or loss). This net income (or loss) from Schedule C is transferred over to the first page of the 1040 (the "normal" individual tax return form) and is used in the calculation of your "adjusted gross income". This is why many self employed borrowers don't really have to pay any taxes.....they deduct everything they can and show little to no "net income" on the Schedule C.

You will still have the option to take the standard deduction or itemize your personal expenses (percentage of you medical bills, interest and property taxes for real estate, etc) on a Schedule A.

Ok sorry thanks for clearing that up it makes sense now! I used to letting TurboTax handle all the details