How do taxes work when you're an "independent contributor?"

Hey all,

So many of you know me here under a different name (Probably wouldn't be too hard to figure out who I am based on this name alone). I just accepted a job with a local news website in a pretty well known market. For the first time in my life, I will be an independent contractor, making $3,400 per month.
I have no idea how taxes work when you're an independent contributor as every company I've ever worked for has taken them out for me.
Any advice? I know a lot of you guys are pretty good with taxes and whatnot.
Thanks for the help.

 

They just pay you out without taking anything, so you have to be disciplined and put a third of it to the side.

Depending on whom you talk to, you'll find that a lot of people file quarterly estimates (easy enough to Google for the form). It is "required," but I've been an IC for the last three years and have never filed quarterlies; my accountant says I don't make enough for it to matter, so there's that. It is a technical requirement but probably not one that's going to be a huge deal in your income class.

Also keep receipts of everything -- if you're an independent contractor I presume that means you're working from home, and you'll be amazed at what you can deduct as business expenses (newspaper and magazine subscriptions, Internet service, etc.).

 

Is a third enough to put aside? I know in other years where I've made in the $28-$32K range, I've had to pay around 10 percent. Assuming I don't have any real deductions (Does paying my own health care count?) I'll be making about $40K at this job and around $6K at my secondary side gig so maybe $46K total. Ten percent of that would be $4K, Fifteen percent would be $6K.
Would you say a third of that covers the taxes?
I really have no idea how this works.

 

You also have to pay self-employment tax in lieu of FICA and Medicare payroll taxes, which your employer matches. It's about 13 percent.

Working as an IC has its cons, especially when you're not really independent.

 

Here's the link to the IRS info for independent contractors

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Self-Employed-Individuals-Tax-Center

 

Making Quarterly estimated payments is required....and a good habit to ingrain...it can be a vicious cycle if you owe too much the following April and you don't have the cash on hand.

 

Keep massive records - save every receipt, log mileage, keep meticulous records. Consult with a tax professional, you'll need to file a Schedule C when you do your returns.

Best advice, consult with a reputable tax professional.

 

Very few things in life piss me off more than paying that self-employment tax every year.

 

Can't stress that enough.

My wife's entire income is freelance. We did our own taxes when she was starting out and we were going to owe thousands. We went to a tax pro who handles a lot of journalists and we ended up with a refund.

I will never, ever do my own taxes again.