06
Feb 2007

Tax Time Again

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I did our taxes over the weekend.  Tons of fun, as usual.  We’re considered independent contractors, and every insurance company we represent sends us a 1099 (or two, if we’re both contracted with them).  That adds up to about 15 1099s for income, plus two for our mortgage interest, one for our ING account, and a couple for our IRAs.  The first year I did the taxes after we were self-employed, it made my head spin, and took me all day.  But I use TaxAct and they import all my data from one year to the next, so it goes a lot faster now.  Plus, I know what I’m doing more than I did a few years ago. 

Between the two of us, we made about $61,000 after our business expenses are accounted for.  That’s not a huge amount of money for two people working full time.  And the crappy thing about being self-employed is that you have to pay twice as much in social security and medicare tax as someone who is a W2 employee.  For the employee, they pay half the tax and the employer pays the other half.  When you’re self-employed, you are the employer, so you pay the whole thing.  We ended up paying about $12,750 in state and federal taxes this year.  That seems like a lot when you look at our total income.  And we even contributed to IRAs and had mortgage interest to deduct.  The self-employment tax is basically a penalty for being self-employed.  But we still love the life that self-employment allows us to have. 

After doing our taxes, I’m very excited to see what being incorporated will bring for us this year.  The accountant I’ve hired has said that it will help out a lot with our tax bill, as we’ll no longer have the dreaded self-employment tax.   That’s worth all the paperwork and time I’ve spent on the phone with insurance companies getting everything switched over to the corporation (hours and hours and hours…..)

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  • Judy

    My DH has just become a 1099 employee. It didn’t matter much for the taxes I just completed as it was only $1,000 of income (just changed jobs). This year will be a different story. Can you provide any advice or maybe a website(s) to help me figure out this process? I’m not sure what all I need to be doing differently. Thank you very much. Judy

  • FrugalBabe

    I was overwhelmed with the tax process for being a 1099 contractor when we first started, but it’s actually not too bad. Make sure your DH keeps track of all his expenses, and keeps receipts. It’s best to track them every day or every week, all year long, so that when tax time comes around, you aren’t digging through a crate full of receipts trying to sort everything out. The basic categories for expenses are advertising, office expenses, supplies, taxes, legal/professional expenses, meals and entertainment, utilities and phone, and insurance. If he’s working from home, you can deduct part of the expenses for running your home (taxes, utilities, etc.) You just figure the sq footage of his home office as a percentage of the total sq footage of the house, and that’s the percentage of household expenses you can deduct. I use TaxActOnline software – it’s been a lifesaver. And also, it’s best to keep personal and business money separate – get another bank account for business expenses/income. It’ll make things easier as time goes on. Good luck!

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