Taxes Made Simple

Jessica (realtor) asks:

Michael, this year I started working part-time as a realtor. I have been told that I will be receiving "1099 income." I think this means I will be an independent contractor. Is this right?

Answer:

Hi Jessica. You're absolutely right. You are now considered an independent contractor, meaning you are self-employed for Federal income tax purposes. This will impact your tax situation in many ways:

• You will (most likely) have to make estimated tax payments at four (approximately quarterly) intervals throughout the year.
• You will have to fill out at least two additional pieces of paperwork (Schedule C and Schedule SE). Don't worry though, if you do some homework ahead of time, you'll be able to tackle these on your own.
• You will be subject to Self-Employment tax. (This is really just a different name for a tax that you and your employer would be paying if you were an employee.)
• You'll be able to deduct many expenses that would otherwise be nondeductible.

For More Information, Take a Look at My Related Book.

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