WELCOME TO THE ERA OF THE 1099!
The gig economy of the country is rising on the graph, and so is the number of independent contractors. Be your own boss! Does it sound interesting to you?
Well, self-employment has its own benefits. You have the flexibility to choose your own working hours, choose the projects you would love to work on, and you can also claim tax deductions that W-2 workers can’t claim. But along with benefits comes certain responsibilities, and one such important aspect of being a 1099 contractor is paying quarterly estimated taxes.
Individuals involved in their own business must make estimated tax payments, including freelancers and independent contractors. Being self-employed, an individual is eligible to pay income tax along with some additional taxes, the most prominent of which is self-employment tax.
Paying these taxes on time and correctly is crucial as neglecting quarterly estimated taxes can put in extra charges on taxation in the form of penalties and interests. In short, if you are a part of the gig economy, you need a 1099 tax estimator that accurately estimates the quarterly income tax for 1099 contractors. If you are a W-2 employee and running a side business in your free time, you need to pay both W-2 taxes and 1099 taxes.
5 Steps to Estimate the tax for 1099 Contractors
Let’s look at the following steps involved while calculating the quarterly estimated taxes and how a 1099 tax estimator can ease the process at every stage.
Step 1: Determine Whether You Are Likely to Owe Quarterly Estimated Taxes
When you don’t have an employer above you to maintain your income taxes through your payroll, you are subjected to pay your own taxes in the form of quarterly estimated taxes.
A self-employed individual who receives some side income and files for $1,000 or more on the annual tax return is likely to pay these estimated taxes, which include:
1. Freelancers such as freelance writers, musicians, professional photographers, bloggers, etc.
2. Independent contractors
3. Sole proprietor
4. Small Business Owners
5. Landlords receiving rentals
6. Shareholders
7. Investors
8. Retired employees receiving pensions, etc...
Step 2: Know about the Type of Taxes a 1099 Contractor Has to Pay
1. Income Tax
Income tax is the total amount of tax you pay annually, which is calculated based on your total income, subtracting the eligible deductions. In order to save some money on tax, you need to keep a clean record of all the expenses, as many might be deductible. Once you acquire the knowledge of your taxable income, refer to the IRS site to check the 1099 tax rate for the current year. Quarterly taxes are a good way to pay off the income tax, as paying the total amount at the end of the year will put a lot of burden.
2. Self-Employment tax
Being a 1099 freelancer, if your income is over $400 during the year, you are subjected to pay Self-Employment tax and income tax.
The tax rate mentioned by IRS for self-employment tax is 15.3% of your net income, and it is divided into two parts:
- Social security: 12.4%
- Medicare: 2.9%
Step 3: Calculate the Quarterly Estimated Taxes
Once you have determined that you are eligible to pay quarterly estimated taxes, you must calculate them.
1. Estimate your yearly income
2. Subtract qualified deductions
3. Determine the tax rate for both income tax and self-employment tax
4. Divide the amount by four to settle quarterly estimated tax liability
However, one more way to calculate the tax is the 1099 tax estimator, known as the 1099 tax calculator, which effortlessly calculates the tax within five minutes, deducing all the tax deductions possible.
Step 4: File and Pay the Quarterly Estimated Taxes
Do you want to know how to file the quarterly taxes? You can simply file your Form 1040-ES by mail and pay the amounts through an online mode of payment. Form 1040-ES enables users to calculate the estimated taxes and inform the users about where to mail the form and payment according to the taxpayer's location.
Step 5: Consider the Due Dates while Filing the Quarterly Estimated Taxes
The due dates for filing quarterly estimated taxes are
- April 15
- June 15
- September 15
- January 15
In case of any holidays or weekends falling on these quarterly dates, the date is shifted to the next business date. If you miss these dates, you will be charged with tax penalties.
Let FlyFin Help
Taxes are more complex when you work independently as a 1099 worker. Figuring out how to assess quarterly taxes and keeping a well-organized record of them are part of the process. FlyFin’s 1099 Tax Calculator is one of the most efficient 1099 tax estimators as it enables the user to consult online with a CPA throughout the year to keep track of the records.
Also Read - LISTS OF TAX DEDUCTIONS YOU CAN CLAIM AS FREELANCERS