Side work, taxes, and you!
Thursday, June 19th, 2008 - 2:59pm
So the past few months or so I've been doing some side work (software/application/web development) and got my first check from the guy who I do the work for.
At which point it dawns on me I have no idea how the whole tax thing works since I've never done anything but a FT corporate job; which I currently still have.
I've heard of quarterly filings requirements and other things, but I'm pretty much lost here. Anyone have any suggestions/advice/links I can use to get my feet planted and running the right direction? I'd rather not have the IRS come after me.
Unfortunately, if I slash my wrist with my lightsaber it cauterizes instantly. - PurEvil on emo Star Wars plots.
Independent contractor?
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If you're asking what I am I guess that would sum it up yes.
Unfortunately, if I slash my wrist with my lightsaber it cauterizes instantly. - PurEvil on emo Star Wars plots.
I believe this is how it works: If you make less than $4,000 all told, you're okay: It classifies as hobby income. More than that, and you have to start treating it like professional income, via Medicare/Social Security payments andestimated taxes and such.
My best advice: Talk to an accountant or a CPA. They'll be able to steer you in the right direction.
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You need a 1099(?) I think. Do what Kat says.
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Ah, ok. That makes a bit more sense and I hadn't though of the CPA/accountant angle. Good to know! Thanks!
Unfortunately, if I slash my wrist with my lightsaber it cauterizes instantly. - PurEvil on emo Star Wars plots.
My impression is that most people with side jobs never report the income. And giggle as they spend tax-free booty on toys.
Have you checked under your table? Lots of information there.
It entirely depends on who's paying you. If they give you a 1099, you're gonna report it, or you're gonna get whacked.
The key thing is to file a schedule C, which is where you would write off all your expenses against that income. This is a hugely important thing to do. Def. talk to someone smarter than me though. I do my own taxes, but am aware that I do so at my peril.
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American taxes are so strange
I deal in Canadian taxes, but the principles are the same. First it boils down to whether or not you are getting taxes deducted based on the job, if you are, everything is fine and you'll have to report it, but in the long run there won't be too many issues. If they are not deducting taxes, and you still have to file, prepare to owe the government a whole shwack of cash. If you don't have to file (IE - paid under the table), then no worries at all again.
The thing is that not only do you have to determine whether you have to claim both incomes (which in theory you should be doing, but it's the government, so if you don't have to = awesomeness), but also if it puts you into the next 'bracket'.
Effectively, you'll get a certain amount of income free of charge, and it's never enough to live on unless you are still living in your parents' basement. After that, you have to pay a base amount (I think first bracket is 25% in the states...). This is the rate you pay up to a certain point ($35,000/a?). After that, you enter the next bracket...probably something like 30%. So, assuming you have two seperate jobs, you're likely being taxes as if it is your only job for that year. Assuming you make $20,000/a at both jobs ($40,000/a), you're going to owe money at the end of the year. Here's the calc as to why:
Job A - $20,000 - $4,000 NT = $16,000 x 25% =
$4,000 Taxes to be paid during the year
Job B - same calc
So, you've paid $8,000 total for the year. Unfortunately that's not what you owe:
Total Income = $40,000
Less NT = ($4,000)
Taxable Income = $36,000
1st Bracket = $36,000 - ($35,000 - $4,000 NT) = $5,000 for 2nd Bracket
1st Bracket Tax = $31,000 x 25% = $7,750
2nd Bracket Tax = $5,000 x 30% = $1,500
Total Tax Owed = $9,250
Based on this example, you would owe an additional $1,250. Make sure if you have multiple taxable jobs during the year, that you end of having additional tax taken, otherwise you could get screwed, which the government is really good at doing
Copingsaw wrote:
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Yep. After expenses you'll be under $4,000 profit, right?
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The first check is only 1500 so yeah I'd suspect so..
Unfortunately, if I slash my wrist with my lightsaber it cauterizes instantly. - PurEvil on emo Star Wars plots.
I'd still recommend talking to an accountant, because tax issues are nasty things to deal with.
"Also, I have four legs and am covered in wool. Baa!" *Legion* reveals his inner furry.
But what if that accountant totally rats him out to The Man?
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Typically there are two types. Those that work for the government (and will promptly rat you out) and those that work to prepare taxes for you and get you benefits (those who are on your side). Assuming you can find one that knows the rules but likes helping find the loopholes, it shouldn't be a problem with "The Man"
Copingsaw wrote:
Super K - The "Anti-Wipe"