Paying taxes as a freelancer

minirhyder

Hello helpers!

I recently got an internship in which they pay me as a freelancer. As in they give me a check for the exact amount they owe me without taking out the taxes for me. This has never happened to me before so I have no idea how to proceed. I've tried going to the IRS website but I gained very little from it.

Can someone tell me how to give the government my money?

Deebaser

Welcome to hell. I haven't done reportable 1099 work in years but googling "1099 taxes file" should probably give you a good place to start.

wonderpug

Disclaimer: I have no idea what I'm talking about.

But, if your internship happens to be some one-off experience that isn't the kind of thing you'll be doing as a job in the next few years, I think you can get away with filling it out as a separate "misc" income as long as you pinky swear that was totally just a one time thing.

Otherwise it's a confusing road of trying to figure out if you have to call yourself a small business or something. (but again, I don't know what I'm talking about)

Disrupter

Well, first off I would take about a third of your check and put it in an alternate savings account you will use for paying taxes. The worst part about being paid as a freelancer is the self employment tax.

Social Security and Medicare come to roughly 15% of your income. Normally your employer pays half, leaving you with 7.5%. However, as an independent contractor you have to pay the whole 15%, so you are roughly being taxed at 7.5% more then you would normally be if you were paying as a normal employee.

Beyond that, the other pain is you have to pay quarterly, not yearly. So you estimate what you would pay every year and you pay 1/4th of that every quarter, then at the end of the year if you overpaid you'll get it back, or if you underpaid you pay the difference. You can also pay based on what you made last year to keep it easier, then pay the difference at the end of the year.

Also, everyone I know who gets paid like this gets bad info that they can write off tons of stuff. They claim they can write off dinners if they happen to mention work etc. Ive had ACCOUNTANTS tell me this junk. Its not true. You can't do it legally, and its probably not hard for the IRS to figure out you've been lying.

However you CAN write off travel expenses and legit work expenses. But usually not enough to make up for the 7.5% self employment.

Dr. Frenchenstein

good god make sure to keep what you would normally owe in a savings account or something. Be sure you are making enough to actually owe taxes as well. Is that what you are asking? how to calculate how much you should sock away?

Don't you get a penalty or something for "owing too much" when taxes are due? I'm assuming that is not the case in this situation? If not, i wouldn't think it'd be too terrible with a tax program like Turbo Tax. You'll just have to potentially write a very large check before April.

edit: i was not taking into account Medicare/SS in my response, that 7.5% sucks. Also, if you don't make enough to pay taxes on your income, you still have to shell out for Medicare/SS (i think...)

bowen

I thought you could write off meals if they were 100% business lunches with meetings and some such. Though these are below the line deductions so if the ST deduction is larger, you can't claim them.

XArchangelX

Doesn't sound like you're going to be making Dentist money, but I would still recommend taking the time and $$ to talk to a real CPA.

It might be worth itemizing everything, and that could really help with what you end up owing. Your employer has to file what they paid you with the IRS, so it's not like the IRS doesn't know what you're making anyway. And keep all your paychecks or make an Excel file and keep really good, accurate records. It's a headache, but it gives you a good feel for how badly taxes hurt your income.

tyrannus

The thing about taking business deductions, like, the home office deductions or cell phone deductions or any type of deductions that have some sort of side-benefit to you personally is that the IRS hates those. Like, the deductions I mentioned are usually big red flags for the audit to come. If you have less than $5,000 in expenses, you can file a Schedule C-Ez. When deducting milage, you can use the standard milage rate and you will have to allocate the miles between business and personal use. Additionally, commuting expenses are not deductible. Like, from home to work = not allowed. But if you, go from work site A to work site B, those miles are deductible.

But yeah, you're going to have to file as a self-employed person and pay both employee and employer side FICA taxes. But you will be getting an above the line deduction for 7.65% of net income from self employment, and only have to pay 5.56% FICA as the employee side.

But this is if, you know, your employer isn't withholding FICA taxes/federal withholding from your 1099. That would qualify you as an independent contractor. See http://www.irs.gov/businesses/small/selfemployed/index.html for any further questions.

Turkey

So glad I saw this thread. I am in a similar situation to the OP and, after reading all this stuff, I'm just going to go talk to an accountant.

From what I am reading in the IRS site (so easy to understand), there's some jargon that makes it sound like independent contractor does not always equal self-employed?
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

tyrannus

Turkey wrote:

So glad I saw this thread. I am in a similar situation to the OP and, after reading all this stuff, I'm just going to go talk to an accountant.

From what I am reading in the IRS site (so easy to understand), there's some jargon that makes it sound like independent contractor does not always equal self-employed?
http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

I guess you'd want to look at this.

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html