Introduction –

One of the things that you should know is that working as a small business owner or an independent contractor, can bring immense freedom, but at the same time it can also become a headache, when the time comes to pay the taxes. And, the reason why it becomes a headache is because if you don’t care or pay attention and make mistakes then it can be troublesome. Apart from filing income tax every April, you also need to set aside money aside for quarterly taxes. This is standard one if you receive form 1099sfrom the clients. Also, you can check how much should you save for taxes? In this link and broaden your horizons on the same.

Working with a Fiscal Advisor –

Besides all of that, it is also suggested that you work with a financial advisor who is a qualified CPA, and the financial advisor will help you to figure out the correct amount of taxes that you need to save for every year. Besides all of that, when you work on a 1099 contract basis, then the IRS would think and consider you to be self-employed. And, it means that in addition to income tax that you are paying, you will also have to pay a self-employment taxes. In the year 2022, the self-employment tax was 15.3% of the first $147,000 in net profit, plus 2.9% of anything that is earned over that amount. Besides all of that, the tax also includes social security taxes and Medicare taxes.

Who Pays the Tax? Employer or Self?

In an ordinary case, if you are working under an employer, then the employer pays the tax. But here you are a self-employed, which is what the IRS considers. So, it means that in addition to the income tax, you will also have to pay the self-employment tax. And, also, because you are a 1099 independent contractor, in which you are not an employee, so you will be responsible for paying the tax. Instead of paying income tax and self-employment tax in the end of the year, you are required by the IRS to pay quarterly tax payments, when you owe more than 1,000 in taxes for the year.

How Much to Save –  

The amount that you should save for 1099 taxes, will mainly depend on your income from self-employment and which tax bracket you will be in, especially when you file your income tax return. Mostly, the amount that you need to save will be from 20% to 35% of your 1099 income, unless there are any deductions which you are eligible to get. Some instances of deductions that you might avail from 1099 tax are – office supplies, computer hardware or software, home office expenses, health insurance premiums that you have paid, business travel, advertising and marketing expenses, & website expenses.