RE: Taxes & Deductions for Independent Contractors

Subject: RE: Taxes & Deductions for Independent Contractors
From: "Nuckols, Kenneth M" <Kenneth -dot- Nuckols -at- mybrighthouse -dot- com>
To: <ekarenski-techwrl -at- yahoo -dot- com>, <techwr-l -at- lists -dot- techwr-l -dot- com>
Date: Thu, 23 Mar 2006 13:39:07 -0500

Karen said...

> This is the first time I've had to file as an
> independent contractor and it's only for 4 months of
> last year.
> I know I can search the web and find a lot of general
> information about independent contracting and TurboTax
> is very helpful stepping me though the process;
> however, I'd like to get a technical writers thoughts
> on the deductions that they were most likely to miss
> taking. Disclaimer: I realize no one on this list is
> probably a CPA, but I'd appreciate hearing your
> responses (aka "lessons learned".)

Tax year 2005 was the first year I had to file as a 1099 contractor, and
as of January 30, I'm now a "real" employee at my company earning a
salary, getting benefits, and having income withheld via normal W-2.

What I find both annoying and somewhat stupid is the government's way of
basing next year's tax status based on last year's earnings. At the
beginning of 2005 I was a "real employee" of a company. About May 1 of
last year, I became a 1099 contractor for my current company, and
retained that status until January 30 of this year, when I once again
became a "real" employee (back to W-2 instead of 1099).

Due to the way the screwy IRS rules are set up, because I was an
employee for all of 2004, I did not have to pay estimated quarterly
taxes from May - December of 2005 (I downloaded a form from the IRS web
site at the end of June last year, and according to the worksheet it had
me complete it said I did not have to pay estimated taxes for the 2nd,
3rd, and 4th quarters of the year).

However, because I had to pay a large lump sum of non-withheld taxes
now, I have been told I need to pay quarterly estimated taxes for all of
2006, even though I'll have taxes withheld by my employer from February
to December. If I follow that logic, then I'll wind up paying about
double what I ought to pay in taxes during this year, and then the IRS
will be cutting me a huge check at the beginning of next year to give me
back what I overpaid. That doesn't make much sense--it sounds like a lot
of extra work for me and for them.

I'm curious if anyone else has made the transition back to "real
employee" from 1099 contractor status during the year and knows the
scoop on when to start and when to stop the whole quarterly estimated
tax payments regimen?

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