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To those of you who are ICs, do any of you get refunds next April? - New IC

Posted: Mar 08, 2015

Hi all,

I'm sure I'm asking a dumb question, but I just left an employee position to be an IC. The last time I was an IC I held out 25% of my wages in a savings account, didn't pay quarterly, and my husband's refund went all to taxes, plus I had to pay more than what I had saved up. Not happy campers. My husband is an employee, making much more than I (about 2-3x more), and I'm not sure how to pay quarterly to ensure that he still gets a refund at the end of the year? I've been all over the irs.gov website with no luck. Being an employee for me isn't an option at all anymore because of a 4-year-old and me wanting to start college for a new career hopefully late this year. TIA

Refunds do not mean you pay less tax - sm

[ In Reply To ..]
When you get a refund, it only means that you OVERPAID during the year. So, when you ask how to be sure that your husband gets a refund, you are really asking how to overpay.

What is the point in that???

A "refund" is not free money. It actually represents poor money management, since you let the government hold it at no interest instead of keeping it in an interest-bearing account.

However, your first goal right now should be to get your taxes paid on time.

Simply use past tax returns to estimate how much of your income to pay quarterly, and PAY it quarterly so you do not incur additional penalties.

If you can't manage to mail them a check when you should, have your husband have his employer increase the withholding on HIS income to cover it.

For example, if you both paid a total of 3000 in taxes last year, but only 2000 was withheld from his income, he needs to increase his withholding until 3000 will be withheld this year. That covers both of you. (He tells HR to decrease the number of personal allowances. If it is now 2, make it 1 or 0. Payroll will then take out more tax.)

Or, you can leave his withholding alone and send in a check for one-fourth of your tax amount last year. It is a lot easier to increase his withholding.

Are you using a Schedule C and including business use of your home and ALL other expenses that you incur with your job? Computer, internet, furniture, footpedals, antivirus software, MS Office, and everything else? If not, you are throwing away money.

You need to find an accountant -- a CPA -- to help you set up what you need. I was shocked by how much money mine saved me, even going back a few years and refiling. An accountant can explain all this to you. He or she will know exactly how to adjust your husband's withholding. The accountant's fees will come straight off your tax obligation next year, so please do not object by saying that you can't afford it. You can't NOT afford it.

Note that I am not recommending one of those tax prep offices. You need an accountant.

Google "how to adjust withholding."

This is an excellent explanation - of

[ In Reply To ..]
why a refund is not a good thing. It is to be hoped your effort has done some good. So many people think a refund is "free money" that is "owed" to them and fail to take advantage of the additional cash flow or opportunities for savings and investments that having that money throughout the year would provide.

Refunds - One size does not fit all

[ In Reply To ..]
They do not represent poor money management. Better to overpay than to end up owing Uncle Sam money at tax time. Most people wouldn't set the money aside and would go out and spend it and then have to figure out a way to come up with the money. I'm one of those poor managers who gets a refund every year and treat myself to something special with the money.

Thank goodness I overpay and could care - less, poor manager here also

[ In Reply To ..]
Horrible in math. One year when I was exceptionally poor I wound up owing over $200.00 and had to make monthly payments to IRS. Cut that out. Went to HR asked what do I need to do, they said go single, no dependents. I was married and had 2 but made all the difference and like the other person, for years I had some wonderful vacations on that "windfall" which I would not have had it not been for the fact of "someone else holding" because bad money manager also. I have no issues with it myself, rather money back than paying out.

EXACTLY!! Thank you. - OP

[ In Reply To ..]
Most people working in employee positions (non-IC) do plan on getting a refund and doing something with it. I asked a question, and thanks to all who gave good advice and/or non-snarky answers.

Exactly. That's why I don't want to be - OP

[ In Reply To ..]
cursed and yelled at again due to taxes swallowing up our refund.

You're still going to be paying those taxes - xx

[ In Reply To ..]
Getting a refund isn't free money. It is money you overpaid in taxes. It does not mean you are paying less in taxes. It just means you are giving the government an interest free loan of your money, money you could be saving or investing so you could "do something with it" just like you can with a refund. If you exercise the discipline to save it instead of overpaying your taxes, you will have more money to "do something with."

If you are paying too much in taxes with each paycheck, you are doing without that money anyway, just as you would be if you saved it, except when you save it or invest it, your money grows into more money.

You are not losing anything if you don't get a refund.

And if you are being cursed and yelled at because of this (or any other) issue, you have bigger problems than taxes. Why would you tolerate that kind of treatment?

I NEVER SAID it was "Free money" - Speaking of tolerating

[ In Reply To ..]
I'm tolerating being talked down to on this board and it's demeaning. My husband just like MOST working people who are employees are used to tax refunds. Yes I am perfectly aware of what overpayments/refunds are.

How dare you imply I don't have financial discipline?! I came on here asking for advice and get talked down to by you and some other posters. Forget this.

For those of you who were civil and helpful, thanks. For all the others, grow up and put your snark where the sun doesn't shine.

IC here withholding % of electric, water, gas, trash, etc. If you pay your own insurance - that is write off. I always get SM

[ In Reply To ..]
a refund, pay quarterly. I have a CPA and as mentioned above, he has saved me a lot of money. I do not over pay on my taxes to get that refund. It is my write offs that do it.

Oops, didnt mean withholding % of house expenses. Meant write off - a % of household expenses. nm

[ In Reply To ..]
x

water as a deduction - lisa

[ In Reply To ..]
exactly what part of water is deductible for working at home as an expense?

Not an IC - but

[ In Reply To ..]
I am an employee but since I work strictly at home, my CPA also deducts a percentage of all the household expenses you mentioned....yes, even including water.

Yes I know it's not "free money" - Not dumb just a beginner

[ In Reply To ..]
Thanks for the explanation, and I know what both refund and adjusting withholding is. It's just the last time I worked IC, I was socked with 30% self-employment tax which makes me wonder why people are saying pay 20% to 25% of your wages quarterly.

IC taxes - IC

[ In Reply To ..]
I am an IC but it probably does not apply to your case as I am PT and semi-retired (on SS income). My tax accountant told me I can make up to $10,000 yearly without paying anything at all so that's where I stand. My sister takes out 15% from each of her checks (she is not in this business) but when you are married, etc., things are probably up in the air tax-wise.

Sounds like you are doing separate tax returns - sm - InkMT

[ In Reply To ..]
which really increases the tax you owe in the long run, especially if you have kids...only one of you can claim them on your return. If you want to be sure, figure it out both ways (joint and each doing your own)....think I will this year just because my income tanked, though my outside job helps with the shortfall so doubt it will make much of a difference for myself.
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But if you want a refund, which is a bit silly as it was pointed out, that means you overpaid, they get your money for a full year before you see it back, though not like you will make much interest on it if you had it anyway. I have an extra $3500 or so taken out of my DHs pay and my own, this is to pay my IC taxes. I used to break even doing it this way, but last two years I have gotten a refund, almost $1K last year, so will need to readjust my payroll deductions as I would rather have that money in my pay, not as a "windfall" in March or April. I have not done my taxes yet (plan to this week) but expect about that back again this year, in this case I owe for an upcoming vacation so that is where it is going. My tax due ends up being only 10% of my gross income, after I put in $3-4K in write-offs on my Sch. C, I write off everything I can think of, % of heat, electric, phone, internet, office supplies, computer, chair, lamp, desk, computer programs, etc. Anything at all related to your work. Most here say to save 30% of each pay, in theory that is correct, but if you do write-offs it will be quite a bit less.
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easiest way to handle what you owe though is just to have additional taken out of your DHs pay, submit a new W4 to his work for his tax deductions and select the option to have extra taken out...$100 a pay is $2600 (if paid every 2 weeks) a year in extra taxes paid. Do the math and figure out what works for you.

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