<p>My oldest just got a part time job. She is classified as an independent contractor. She knows she will have to put aside some of the money to pay taxes and Social Security. The job will last for about 4 months. I think she will make around $3200. This will probably be her only income for the year.
From some internet research she has determined she can deduct mileage and gas from her taxes. She also needs to replace her cell phone. The phone is essential for her job. It has been years since I did my own taxes. Back in my premarried days I filed a 1040 ez. I would assume D would do the same since her income level is so low. Or does an independent contractor make her have to fill a regular 1040? With that income level does it make sense for her to keep track of mileage and expenses?</p>
<p>Mileage cannot be deducted for driving to work and back. Only the miles in between count. It’s mileage OR gas, but not both. The cell phone is debatable. It’s not like she wouldn’t have it without the job. </p>
<p>No. She won’t be able to file an EZ if she puts the income on a schedule C. With that level of income, assuming she has nothing else, she won’t owe income tax, but she will owe self employment tax.</p>
<p>I hate it when companies do this to kids. She is seriously not self employed. She is an employee of this company.</p>
<p>I agree.I don’t think she knew what she was agreeing to. They also had her sign a contract that she will give them 30 days notice and that she will not work for a another similar business for 1 yr after leaving within 100 miles. Which I think is totally ridiculous. She knows she is moving from the area in 4 months so she did not have an issue with this requirement. I do think they have a right to classify her as an individual contractor based on the fact that she gets a set payment each week. Her hours are not set and she determines on her own when she goes to work. Some weeks she will work less and other weeks more all for the same pay. She feels she will learn a lot from the job.
The cell phone issues is that her screen is broke on her current phone and she needs to be able to receive and send text messages for this job.
The cell phone issue is that her present cell phone the screen is broken and she can not read text messages. She needs to be able to receive and send text messages.</p>
<p>The do not compete is not enforcible…at least not in IL. Have your daughter check on that, but I don’t think companies can keep you from working even if you sign a do not compete, but particularly if you are supposedly an independent contractor.</p>
<p>Honestly, she should probably pay for tax help for this year to make sure she does this right. Also, she may have to pay estimated taxes, and needs to understand that right away (it is not a year end issue). I say this as a die-hard Turbotax user with very complex taxes… but I am also a contractor (with an S-corp, though) who gets an accountant to help with the business side of my taxes.</p>
<p>I would not be so sure about the noncompete clause without consulting an attorney.</p>
<p>She will need to file a regular 1040 with a schedule C-EZ. The C-EZ is for self-employed individuals who have business-related writeoffs of $5000 or less. The C-EZ does not require itemization of the deductions – you just write the total in the appropriate line on the form. </p>
<p>Tell your daughter now to write down every type of expense that she thinks MIGHT be a business related expense, and to keep receipts, including transportation costs as well as the cell phone purchase. The decision as to whether or not to deduct an expense will be made next year, at tax time – and she can get appropriate tax advice then if she feels she needs it. The decision to keep a RECORD is a no-brainer: she won’t know what she can write off if she hasn’t kept a record, and she will know better in hindsight what expenses were attributable to her job and which weren’t. </p>
<p>Don’t give tax advice when you aren’t a tax professional. My daughter had self-employment income in college and was able to get tax advice, for free, via the college career center. The advice she was given was far more liberal than the advice I would have given – so she saved money by following the professional rather than the parental advice.</p>
<p>Your daughter needs to know that she will have to pay self-employment tax on her net income – so those write-offs really are important. </p>
<p>There are two ways of looking at the deduction part: you can err on the side of caution, or you can try to maximize your deductions. Since that is a risk-based choice, that is an individual decision. The “risk” is that there will be an IRS audit later on, and the person will have to pay back taxes and possible penalties. This isn’t a matter of tax cheating - situations can be ambiguous. I think, for example, the cell phone issue depends a lot on the phone that she buys and how long she keeps it.</p>
<p>We have an accountant who will probably do her taxes. As soon as his work slows down I am going to give him a call.
She is well aware that she needs to save money for all the taxes. She has a rough estimate of how much she has to put aside. She is actually planning on putting the entire amount aside to save for some future expenses.
I will advise her to write down everything she attributes to the new job. She ordered a phone on ebay. Nothing super fancy. She needs a calendar and texting.The job requires her to go back and forth several times in a day. The mileage total is not high but she will be using more gas. She can keep track and find out later if she can deduct any of it.
The good thing is she met with the owner and he paid her the first check. She has only been working 6 days so was extremely happy that he paid her so promptly.</p>
<p>As an independent contractor, I always deducted cell phone expenses and my cell phone and/or PDA purchases. I was a real estate broker, so definitely needed it for work (and in the very early days - anyone remember when we paid $.40/minute(!!!) for cell usage?!) I actually only used the phone for business.</p>
<p>She/accountant can decide whether she will deduct actual auto expense (gas, repairs, depreciation…) or use the per mile allowance. The latter is a lot easier, that’s for sure.
The accountant can help sort out whether she even has “commute to the workplace” expense if she is an independent contractor - as an IC, presumably her workplace is her own home and so she can deduct mileage to the company’s office. However, the commute to work is typically not deductible.</p>
<p>And, yes, the independent contractor status is likely nonsense. In some industries, the IRS is right on top of this and will go after the company and/or the independent contractor to dispute the validity of the status. They want these companies to call a spade a spade and pay the appropriate payroll taxes on workers who really are employees. But the decision of whether one is an employee or independent contractor is quite a complex one, involving the answers to over 40 questions. So, she shouldn’t worry about it, I don’t think… I’m just editorializing :).</p>
<p>Make SURE you ask the accountant whether she needs to file quarterly estimates - setting aside the $$ to pay taxes is fine, but may not be enough. If independent contractors don’t pay enough of their taxes throughtout the year in quarterly estimates, there can be quite a penalty when they actually do their annual returns and pay what’s due. In her case, she may not be making enough for this to be an issue - I don’t know.</p>
<p>I’d like to add that this is the critical sentence in the above post:</p>
<p>“I actually only used the phone for business” </p>
<p>If this will not be the case, I would NOT try and deduct the phone. I also agree that she may need to do the quarterly estimates. Definitely agree on seeking out a tax professional.</p>
<p>Great advice already given.</p>
<p>As an independent contractor, I want to echo the importance of keeping receipts. When you first start, it is just a whole new way of thinking and you have to train yourself to view every trip to Office Max as a tax deduction.</p>
<p>As for the phone. One thing to consider, she might be on your family plan for a small fee, but then have her own separate plan which could be tax deductible. I won’t say that I never use my business phone for personal use, but I do have evidence of a personal line as well, showing the intent to have the business phone for business purposes.</p>