Tax question -- any accounts out there?

bank5

Semi-Pro
Say someone makes $100,000 as a fulltime W2 employee and an additional $10,000 as a freelance 1099 employee. How much would he owe on just the freelance portion of his taxes?

My understanding of it is this:
He's in 28% bracket and would have to pay an additional 7.65% self-employment tax on the $10k. So he would owe (28% + 7.65%) X $10,000 = $3,565 for his freelance work. Is this correct or is it more complicated?
 

LuckyR

Legend
You could do that, BUT, I would declare the second income as part of a contractor status and as such use all of my writeoffs for both jobs only on the second income (since it is all deductable, instead of only deductable above a certain percentage of your gross income). You probably could get the profit of the contractor down to the low four digits, where the taxes would be negligible.
 

bank5

Semi-Pro
You could do that, BUT, I would declare the second income as part of a contractor status and as such use all of my writeoffs for both jobs only on the second income (since it is all deductable, instead of only deductable above a certain percentage of your gross income). You probably could get the profit of the contractor down to the low four digits, where the taxes would be negligible.

That would be ideal, but I'm not sure I follow you.

What do you mean by declare the second income as part of a contractor status? How would I go about doing that?

Thanks!
 

bank5

Semi-Pro
Here's what TurboTax says about 1099-Misc Income:

TurboTax; said:
What being self-employed means to you:
- The IRS considers the money that you earned as a contractor or consultant self-employment income. The payment you received from this payer is considered self-employment income to you.
- Being a contractor or consultant means that your contractor or consultant income will be taxed like a business owner's business income. This means that 'self-employment tax' is due on your self-employment income.
- You can deduct any qualified expenses for supplies, vehicle expenses, home office, and other expenses that you incurred in earning your contractor income. (More on this later)
- If you earn wages, Social Security and Medicare taxes are withheld from your wages. If you are self-employed you pay self-employment tax. Self-employment tax is how contractors with self-employment income pay Social Security and Medicare taxes on their contractor income.

So it seems like my 1099-MISC income is business income and I can only deduct business expenses from it.
 

LuckyR

Legend
Here's what TurboTax says about 1099-Misc Income:



So it seems like my 1099-MISC income is business income and I can only deduct business expenses from it.

Did the TurboTax info make sense to you? It really is a cool thing (for a change).
 

movdqa

Talk Tennis Guru
I thought that you had to pay both sides (employer+employee) of the SS/Medi tax at somewhere around 15% so that's 15%+28% assuming married filing jointly. Rates are higher if single.

If you're essentially self-employed, you can apply expenses to revenue to reduce income. In the old days, we bought cars and computers and business meetings at nice restaurants. The IRS did some cracking down on that a few decades ago at the behest of big companies that didn't want to pay higher rates for contractors that would look attractive to their own employees.
 

bank5

Semi-Pro
I thought that you had to pay both sides (employer+employee) of the SS/Medi tax at somewhere around 15% so that's 15%+28% assuming married filing jointly. Rates are higher if single.

This is what I was originally thinking. I pulled up last year's tax form and think it's actually an additional 7%. That's because the other portion of the 7% is cover in the 25% income tax bracket. Form 1040 SE explains it - http://www.irs.gov/pub/irs-pdf/f1040sse.pdf

#4 - multiple self employment net earning by 92%
#5 - multiple line 4 by 15.3%
#6 - multiply by .5


So, I think the exact number for this case would be
$10,000 * .9235 * .153 / 2 = $706
Plus the additional 25% from the income tax bracket so the total would be:
$3206

Anyone else get the same thing?
 
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