What percentage of income should be set aside for taxes

Welcome to the age of the 1099

The gig economy is growing. So are the number of people working as 1099 contractors.
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But being a 1099 contractor isn't always straightforward. It is especially confusing to file taxes. Are you technically self-employed? Or are you classified as an employee? Should you pay quarterly taxes? If so, how? 
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If you’re feeling overwhelmed, don’t worry; you’re not alone.
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We’re here to help. We’ve answered the most common questions about paying taxes as a 1099 contractor!

Is there a difference between being a 1099 contractor and being self-employed?

If you are an independent contractor, you are self-employed. This means that your earnings are subject to the Self-Employment Tax. 

How to pay taxes as a 1099 contractor

As a self-employed individual, you are generally responsible for estimated quarterly tax payments and an annual return. 
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You are responsible for federal and state (if applicable) taxes on your adjusted gross income. So the more tax deductions you can find, the more money you’ll keep in your pocket.
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Filing an annual return: To file yearly taxes, you’ll need a Schedule Cform. Use the income calculated on this form to calculate the amount of Social Security and Medicare taxes you should have paid during the year. You’ll file a 1040 or 1040 SR to report your Social Security and Medicare taxes.
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Filing quarterly taxes: First, calculate your adjusted gross income from self-employment for the year. (The more deductions you find, the less you’ll have to pay!) Use the IRS’s Form 1040-ES as a worksheet to determine your estimated tax payments.

What is the Self-Employment Tax?

The self-employment tax rate is 15.3% (12.4% for Social Security tax and 2.9% for Medicare). The self-employment tax applies to your adjusted gross income.
If you are a high earner, a 0.9% additional Medicare tax may also apply.

How much will I pay in taxes?

How much you pay will depend on various factors, including how much you earn and how many tax write-offs you find. Nevertheless, independent contractors are usually responsible for paying the Self-Employment Tax and income tax.

With that in mind, it’s best practice to save about 25–30% of your self-employed income to pay for taxes. (If you’re looking to automate this, check out Tax Vault!) And, remember, the more deductions you find, the less you’ll have to pay.

How can I lower my taxes?

The easiest way to lower your payments is by using a mileage and expense tracker. By tracking your work mileage and expenses, you should be able to find thousands of dollars worth of tax deductions. Finding more tax deductions means that more money stays in your pocket. 
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Example: Sam uses Everlance’s #1 mileage & expense tracker to track his work mileage and expenses automatically. At tax time, he exports this information and writes everything off. He typically finds $6,500/yr in deductions. 
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Remember: The more deductions you have, the lower your taxable income will be, and the less you’ll owe to the IRS/the bigger your refund.

Do I need to pay quarterly taxes?

How do I pay quarterly taxes?

Here is how to calculate your quarterly taxes:

1. Calculate your adjusted gross income from self-employment for the year.
2. Use the IRS’s Form 1040-ES as a worksheet to determine your estimated taxes.

If any of the following apply to you during the year, you may have to pay quarterly taxes: 
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- You expect to owe $1,000+ on taxes.
- You made $400+ in self-employed/1099 income.
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For the full details, check out the IRS’s clarification: “Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.”
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While the annual return is due on Tax Day (April 15th), quarterly tax payments are due every quarter. Make sure to pay estimated taxes on time. 
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The four estimated tax payments are usually due each year on the 15th of April, June, September, and January. If that date falls on a weekend or federal holiday, the filing deadline is pushed to the following business day. If you don’t pay on time, then you may be subject to a penalty.

Understanding 1099 contract work and taxes

Key Takeaways

If you’re a 1099 contractor, then you’re self-employed.

• As a 1099 contractor, you’re typically responsible for quarterly and annual taxes.
  
• The easiest way to lower your taxes is to track your mileage and expenses using an app like Everlance.

Meet Everlance, the #1 mileage & expense tracker.

Everlance is the #1 app for tracking work mileage & expenses. With Everlance, you can automatically capture your car mileage and business expenses—which likely equal thousands of dollars of deductions. When preparing for taxes, download your mileage and expense records. Then, hand them over to your accountant or import them directly into your tax preparation software. Money saved! 🎉

Your tax situation is unique—just like you! This information represents generalized tax information. If you need help with your specific tax situation, please reach out to your tax advisor. 

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