My nephew wants to work for himself. Anybody know how an indi pays taxes?

[BigBearJohn]

Sorry, but I'm really ignorant on this subject. I have worked for employers all my life. Well, my nephew is a GREAT cabinet maker and
he wants to go independent, but does not know how he would pay taxes. Does he need a business license for that? Anybody know? I sure appreciate any advice any of you can provide. Thanks!

[trof]

1. I think he files a quarterly return.

And I believe he has to pay S/S, Medicare, the so-called "payroll taxes" for himself and any employees.

[Deja Q]

2. Yuppers. That's their idea of a 'flat tax' too, BTW...

That's all I know, but the taxes (for small businesses) are horrendous. Pretty much the same for the big boys too, but they make far, far more and as such won't care. It's peanuts to them.

[Jeff In Milwaukee]

4. The answer to every tax question...

"It Depends"

I know people who are self-employed who don't pay quarterly (mostly because they can't remember, really, but also because their tax liability is generally so low -- and their income so unpredictable -- that it rarely makes sense.

If he files Schedule C (Income from Self-Employment), he'll also need to file Schedule SE, which is Self-Employment Tax -- essentially his share of Social Security.

[ayeshahaqqiqa]

3. Not a CPA

but I think he's required to keep really good records of income/expenses. After a certain amount of income is reached, he will have to pay in quarterly taxes. He has to pay ALL the Social Security and Medicare for himself, of course. Now, since he's a cabinet maker, he may work as a subcontractor for someone building houses. If he does, he should insist on getting a 1099 at the end of the year.

I would suggest he consult with his local college to see if there are courses in setting up small businesses. Sometimes states have special help for people starting out, as well.

[havocmom]

11. Yeah the big thing is to keep records and realize you have to pay double

Social Security, as you have to pay worker's half and employers half. BUT yu get to take half of that total SS tax (called Self Employment Tax on the forms) off you gross income when you do your personal tax return.

Keep detailed records. Keep list of tools/equipment costs and when that equipment is put into service in own business. Cost of such is considered business expense, but there are specific formulas for how much of a deduction for anything which will be used more than one tax year, so read the fine print on the tax forms.

Keep detailed accounting of insurance, any licenses, permits that sort of expenses, and milage! If vechile is used, there are formulas for how costs are deducted from business income.

Really not too bad, but a business accounting course is a help.

[NYC]

5. Schedule C and Schedule SE.

Meanwhile, he has to make quarterly payments. 1040 ES = estimated payments throughout the year.

[SmokingJacket]

6. My husband and I are self-employed.

We pay taxes quarterly based on estimated income. At regular tax time we get a refund if we overpaid, or pay if we didn't pay enough. You have to be on your toes because if you guess wrong you can be hit hard.

I don't know about the business license -- I would guess that has more to do with the city he's doing the business in.

(It actually totally sucks to be self-employed because you pay your own social security taxes. But the old man and I don't have personalities that tolerate authority very well... )

[Lars39]

7. He really needs to consult a tax accountant.

Even if he winds up doing his own taxes. The tax accountant can set him on the right track. I know he'll need a business license.

[SmokingJacket]

9. And I HIGHLY recommend not going to somewhere like HR Block

They are very uncomfortable with the self-employed, in my experience.

We paid through the nose for a tax guy for a couple years, then decided we had learned enough to do it ourselves.

[serryjw]

8. Yes, he will need a business license

as for taxes, He does need to pay quarterlies BUT I would not do it the first year. If he made money the 1st quarter and didn't make it the 2nd quarter, THEY would owe him money that he needs NOW to start the business. He should be ok, but I would consult a small business tax accountant.Remember tax obligation is based on what you make for the year and he has no idea how much that will be.

[FloridaPat]

10. He can incorporate and save a ton in taxes, or go as an individual

with schedule C and save 1/2 ton on taxes. Corporations for mostly for people who make a lot a money and/or people that can get sued for what they do. A corporation takes the brunt of the lawsuits. If he goes as a 'schedule C', people suing him can go after his assets.

A compromise is to go "schedule c" until you get the kinks worked out and enough money coming in to make it worth it.

[Kali]

12. KEEP ALL RECIEPTS and a LOG of some sort

for spending and vehicle. On receipts: if you think they will fade or otherwise be confusing months in the future when somebody needs to see them, make NOTES!

If he can follow directions in a reasonable way he can do all of the paperwork himself.

I am employed plus self-employed in farming, Husband is self employed in construction and self employed in ag. I do all the paperwork. It isn't that difficult. If he is going to hire employess that will be when the excessive amounts of payments and record keeping, and other regs will smack him up side the haid!

Turbotax is your friend and its pretty much free even for my complex situation.

[BigBearJohn]

13. I cant believe how cool you have ALL been Thanks SOOO much!!!

[SOteric]

14. You don't need a CPA, just visit your local

IRS office (they're in the blue, Federal Government pages of your phone book) or check out their online website.

The branch in downtown Seattle has a kit for the self-employed and for those launching start-ups. It's actually not too horribly complicated.

How his state governs taxes and businesses is another matter, but the IRS is the group you really don't want to piss off.

[BigBearJohn]

15. Thanks. We're moving to Washington actually.