A community of 30,000 US Transcriptionist serving Medical Transcription Industry

Still confused about tax deductions. - needanswer

Posted: Nov 20, 2011

OK....just to be sure I understand this.....if I am an IC, do I deduct approximately 15% (like what my previous employer deducted for SS and Medicare) OR do I deduct 30% for my part and employer part? I've been on the IRS website but that's confusing. Don't have the money to consult a CPA right now. Don't want to take a job as an IC if this is a mistake. Have an interview for IC and 2nd interview for employee status. Sorry to keep repeating myself.

IC taxes - JC

[ In Reply To ..]
The most I ever withheld from my check for taxes was 25%, just to be on the safe side. That was plenty.

there are several parts to your taxes - Happy MT Robin

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You've got your federal withholding tax, your state withholding tax and then your FICA aka social security taxes.

Your federal withholding is just the same as if you were an employee and you can figure out your rate using the tables in this publication from the IRS:

http://www.irs.gov/pub/irs-pdf/p15.pdf

Keep a copy of this on your computer and refer to it often. There is a lot of good info in here.

You also have to pay your state withholding taxes on your own. Google your state name and taxation and revenue and chances are good you will find your state's website that will allow you to do this online.

Now, about the self employment taxes.

http://www.irs.gov/businesses/small/article/0,,id=98846,00.html

In a normal year, as an employee, your employer pays half and you pay half. As an IC, you get 100% of this obligation. Right now, through the end of 2011, that obligation is a total of 13.3%. That is scheduled to go back up to 15.3% at the beginning of 2012. You have to pay this up front, and then you deduct the employer's portion on your 1040 at the end of the year.

As to paying the taxes, go here:
https://www.eftps.gov/eftps/

This is a site where you can go on and pay your taxes monthly, quarterly, etc., however you decide to pay them. You have to register with the site and wait for the paperwork to get a final password, but it's worth it.

So, you have federal withholding which, depending on how much you make, can be anywhere from 10% to 15% of your income. You have your state withholding taxes which typically is about 3% to 5%, and then you have your FICA taxes which right now are 13.4% and will be 15.3% in January. You want to hold back AT LEAST 25% of your income and make regular payments to the government. Your deductions at the end of the year will off set some of this, but with at least 25%, you're in no danger of under payment penalties. If you hold out 30%, you can pretty much guarantee you'll get a refund, but personally, I'd rather owe a little bit at the end of the year ($100 or less) because I don't like letting the government use my money for free.

You can pay your federal withholding and your FICA both at the same time on the EFTPS website. Remember, though, that you must keep records of how much you paid and whether it was for withholding or FICA. You will need this come tax time.

When I was an IC, I paid the taxes every time I got paid. It was easier for me to do it that way than try to put the money aside and pay it and that way I didn't have the money hanging around tempting me to be stupid (which I had done in the past). The one thing you DON'T want to do is wait until the end of the year and make one big payment. You run the risk of under payment penalties from the feds if you do that. You want to make at least quarterly payments to them.

Another option, if you're married and file jointly, is to have your spouse increase his/her deductions at work. I did this when I had an IC and a non-MT employee job and it worked quite well. The government doesn't care where the money comes from as long as they get it. The only drawback to this is the social security deductions go under your spouse's name. That's all fine and dandy if you've been married more than 10 years and have a good relationship - you'll get his Social security anyway. If you've been married less than that or if your relationship is rocky, I wouldn't recommend this path.

This is a long winded answer to your question, but paying your taxes isn't anything to mess around with because if you mess it up, there are big penalties that go along with it.

I get that you can't afford a sit down with a CPA, but do some research and reading and educate yourself.

Thank you ! - needanswer

[ In Reply To ..]
I appreciate your post, it is very helpful. Again, THANKS !!!!

SE Taxes - You don't have to pay ahead quarterly - if - sm

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You did not owe money the prior year. You only have to pay estimated SE tax if you owed money the year prior. It's right in the Federal SE Tax booklet. My IRS auditing agent didn't even know that. She told me I HAD to pay estimated taxes. I circled the paragraph in red Sharpie, sent it to her and she apologized. The IRS does make mistakes - many. And if you feel they are playing hardball and causing undue hardship, go to the Taxpayers Advocate office. They put the IRS in their place :)

Not entirely accurate - Happy MT Robin

[ In Reply To ..]
that's one of the criteria for not paying estimated SE tax, but you ALSO have to owe less than $1k after your withholding and deductions are taken into account and you also cannot have owed any money for the prior year.

http://www.irs.gov/publications/p505/index.html

See section 2, "who must pay estimated tax."

OP - This is exactly why you need to talk to a tax professional in your area. Some of the information on here is not what I would agree with and some of it they don't agree with me. Get information from someone who is a tax professional, not MTs who do their own taxes, either rightly or wrongly.

If you just flat out can't do that, then call the IRS and ask them. Go to the source, as it were. They really are not the enemy. I have called them and gotten information and they have been very helpful.

Thank you ! - needanswer

[ In Reply To ..]
I appreciate the help - :)

Happy Robin MT - sm

[ In Reply To ..]
Regarding the SE tax post I made above, I had this happen directly to me. I am actually offended by your comment, "This is exactly why you need to talk to a tax professional in your area. Some of the information on here is not what I would agree with and some of it they don't agree with me. Get information from someone who is a tax professional, not MTs who do their own taxes, either rightly or wrongly." I don't appreciate your dig at those of us MTs who do our own taxes. My daughter IS a tax professional CPA, but I do my own taxes - I have for 24 years. Not all tax professionals know every loophole and every grey area to exploit to your advantage, which is all legal - you just have to know where to look and most importantly how to interpret it to your advantage, and then apply it. Nothing is as black and white as it seems. You don't have to agree, what I said is a fact. A personal experience fact direct from the IRS in person. I can prove it in writing. The IRS Regional Manager for the western United States gave me the booklet in the IRS building and pointed these three sentences out to me and said this is the rule to go by - clear and simple:

Estimated tax not required. You do not have to pay estimated tax for 2011 if you meet all three of the following conditions:

You had no tax liability for 2010.

You were a U.S. citizen or resident alien for the whole year.

Your 2010 tax year covered a 12-month period.

He told me directly that if I met these three sentences I do not pay estimated tax PERIOD. This was for 2009, 2010 AND 2011. The Revenue Officer who was trying to force me to pay it was incorrect. If you haven't directly been through this with the IRS, you don't personally know and shouldn't make comments about other people who may have. This Revenue Officer I was dealing with had me owing $45,000 in back taxes - $34k for a year where they owed me a refund of $1,500!! She was going to levy and lien everything I own, which prompted me to contact the IRS Advocate's office and the Regional Director. I got everything cleared and a refund!

I'm not misguiding the OP and I'm a little miffed over the fact of you implying that. I'm tired of people that come across as know-it-alls who have never had the personal experience of something and make a passing jab about those of us who may have.

Again, talk to a TAX PROFESSIONAL - Happy MT Robin

[ In Reply To ..]
This is why I strongly suggest that the OP talk to a tax professional and not MTs who are NOT tax professionals - you and me included.

You and I are giving her widely divergent information and if she does something incorrectly there could be penalties involved.

Talk to a tax guy, then you are sure & his fee is write-off. - You can learn alot from a tax guy. nm

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needanswer - Old Pro

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I say this to people all the time, and I think it is valid: The best investment you can make is to have a CPA set you up. You cannot afford NOT to do this. See if the CPA will take payments. Believe me, the money you save in the long run will more than cover the CPA's fees. Are there any business schools/universities in your area? Could be some CPA students could help for a reduced fee. Good luck.

taxes - tony

[ In Reply To ..]
I have been an IC now for about 8 years. What I do is take out 15% of my pay for taxes out of each paycheck and put it into an envelope for tax time. You can either make estimated payments quarterly which is a waste of time or wait until you do your taxes. We do our taxes on Turbo Tax ($30 at Walmart, Basic edition-it's all you need). Your employer will mail you a 1098 form and you just put the info into turbo tax when it asks if you have that form (pretty much the same as when you are an employee and have a W4 and do your taxes).

Do not hesitate to take an IC job, I've been IC and employee, IC is much better, the only bad thing is no paid time off and no health benefits so if you need those things, IC isn't for you. I have health ins under my husband's plan and if I need to take time off, I just work extra before and after I take the time off to make up.

I usually don't have to send the money from my tax envelope savings to the IRS because we show lots of losses with other things, but if you have to send in your money, no big deal, they (turbo tax) can deduct it right from your MAC or a credit card.

Also when you are IC, you can write everything off. Your paper, pens, paper clips, electric, a new computer you may have bought, a foot pedal, headset, printer ink, anything you can think of. I even write off against food receipts for throughout the year as if I am trying to get more work as an IC and am wooing a potential customer with a good meal (not all of the receipts, about one a month)

Also as an IC you have your freedom which is very important to me. They have no control over you like employee status. The lady I am an IC for likes to know my approximate hours and how much I'll be doing and as a courtesy to her I will tell her but I am not held down to it at all.

You do not need an accountant to do your taxes being an IC. Believe me, if I can do it on my own, anybody can do it. Don't be scared, go for it!

Thank you too! - needanswer

[ In Reply To ..]
That's helpful! We do our own taxes also. I was very concerned about withholding for taxes. I'm in Florida, no state tax. I thought I would have to withhold 25% of my pay, 15% sounds better. I already deduct for home office, can get my own health insurance and not worried about paid time-off. I will take an IC position but I would think they would have to pay more than a standard 8 cpl, otherwise, might as well be an employee.

taxes - tony

[ In Reply To ..]
That was the other thing I forgot to mention was that you do get paid more for IC status! That's another great thing about it! Yes, do only 15%, it will be enough. I remember one year I did 20% and actually had too much, although it was a nice little savings plan, I'd rather have it in my pocket! I'm also in Florida. Well sounds like IC is perfect for you too. The company I used to work for as IC paid 9 cents I think (long time ago). Now I get paid 11 working for a different company but that's also for QAg and assigning work too, but he's going out of business due to EMR so now I'm going out on my own. Good luck to you!

Just remember - Old Pro

[ In Reply To ..]
That a business eventually has to show a profit. The IRS has rules about this and I will not quote the ones I remember, as the Tax Code is ever-changing. When I started my business, I was told that you had to show a profit in 3 out of 5 years or else the IRS would look on what you were doing as a hobby rather than a business and disallow the deductions. You need a tax pro to tell you the current rules. Just don't think you can keep on declaring losses year after year without getting a frown from the Feds.

Don't want the IRS checking me! - needanswer

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I have no problem paying my fair share of taxes (ugh) but just wanted to check on the percentage I needed to withhold. 25 to 25% sounds reasonable but anymore than that AND being paid only 8 to 9 cpl does not seem worth it. For that pay I'd rather be an employee, have the employer pay their half and receive benefits.

taxes - tony

[ In Reply To ..]
Needanswer, I'm assuming you will be filing your taxes jointly with your husband?

Yes... - needanswer

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We always file joint but my husband is disabled and collects SS disability. We've done our own taxes for 20 years. I mainly was concerned about paying twice the amount of taxes I would as an IC compared to being an employee. No state tax - Florida - one break there. Has long as I only have to withhold 20 to 25%, pay quarterly and hopefully not owe more tax, I'll take an IC job IF the cpl is decent - 10 to 12 cpl.

taxes - Tony

[ In Reply To ..]
Well I hope you get 10 to 12 cents. A lot of employee positions are only paying 8 cents and I'm sure you will get paid more for IC. I think at my last job as IC I made 9 for typing and 4 for editing. But like I said, now I am getting 11 cents but I am also QAg work and assigning work too but not getting paid for that, just 11 cents for typing only.

I'm going to let the tax issue go. I don't want to tell you wrong information. All I know is, me and my husband file jointly, I also have a rental home which shows losses every year, I write off a lot against my transcription business and I put 15% away each check and we usually end up getting money back each year, well actually, we get to keep the tax money I saved throughout the year.

If you use tax guy, if IRS comes knocking, just send them to - tax guy. Also his job to deal with IRS. nm

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