<p>do you pay taxes if you earn about $5000 a year? how much and when do you pay? any good tax programs out there for independent contractors?</p>
<p>thanks</p>
<p>Yes you will need to pay taxes on this as well as Self Employment Taxes. However, all Tax programs are pretty good at handleing this. You fill out the Schedule C with your costs and income. So even though you will bring in $5000 you will have expenses required to earn this which are not subject to the 2% rule. Typical expenses such as, mileage, office supplies, phone (not home phone though, unless you have more than 1 line), any specialized tools of your trade, any home office expenses, as well as a portion of your internet if access is required to preform your job duties. Most items are basically subject to what you are doing to earn the money as well as the IRS classification you use to describe this income. </p>
<p>I am an Independent Contractor working as a merchandiser and I do Taxes each year for other IC’s. A large percentage of my overall income is allocated to expenses but my income does go up each year. I do pay taxes on whatever amount is left over as well as Self Employment taxes. </p>
<p>Hope this helps</p>
<p>As a self-emplopyed person, I pay quarterly taxes (based on last year’s income, unless there are huge fluctuations up or down, which occasionally happens in my work). Momstax is right about Schedule C and the rest.</p>
<p>Depending on your locality, you may also need to have a business license, pay gross receipts taxes (sometimes called business license taxes), personal property taxes on any personal property you claim as a Sch C expense, sales taxes, etc. I would recommend that you meet with a local CPA (ask around and find one who has experience with self employed clients) for an intial consultation. The CPA will be able to get you started with all of the initial filings required, give you a list of deductible expenses for your type of business as well as letting you know what the various tax requirements will be so you can budget for them. Penalties for non or late filing can be quite hefty, so it’s really important to know what’s required and when it’s due.</p>
<p>thanks. two more questions:</p>
<p>when do you pay? every three months since your first day of contract? jan 1 of 2007?</p>
<p>and what is your estimation of the tax rate based on $5000?</p>
<p>The rule used to be that if you paid no taxes last year you’re not required to pay quarterly this year, and can wait until next April to file a return and pay whatever you might owe. I think that’s still the rule, but I’m not sure. Income tax on $5,000 will be be very small. If you are not claimed as a dependent by your parents you won’t owe any at all. If not, you will still have a standard deduction and pay at the lowest marginal rate of 10% on the rest. </p>
<p>However, social security (FICA) tax will be about 15% with no deduction. Most people pay more FICA taxes than income taxes.</p>