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Old 02-06-2015, 08:41 AM
 
5,444 posts, read 4,823,845 times
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Quote:
Originally Posted by Mystery123 View Post
Thanks for comments.
Here is the thing.
I don't own a business.
I work as a software programmer.
Those two 1099 were like this:
1. $12k was from a small coding project that I did in the weekends for few months for a company who needed some additional help finishing their project in time so they paid me in 1099.
2. $8k was a 1099 payment from a consulting company as a kind of bonus.

So I never filed self employment tax as these projects were in between and not my full time job.
What I did is added those two 1099's with all the W2's, bank interest etc... in tax return as suggested by the Turbotax or Taxcut (one of them) and that DID increase the overall income and tax accordingly so it's not like I didn't pay tax on the 1099 incomes.
I remember the tax before those 1099's were something like $4k that I had to pay to IRS and after I added that $20k, I paid $12k.
So $8k additional tax for $20k 1099 because that $20k took overall income to higher bracket.
I even paid $50 or something as late tax payment that Turbotax calculated for 1099 as I was supposed to pay tax quarterly or something.
But the thing is it's not my business and it doesn't go all year so there is no way I can pay pretax so have to lump sum all income in the end.
I have done that before that as well and after but never had self employment tax issue until yet.

I do those projects very rarely.
Sometimes one or two in a year and then no projects for years.
Last year (2014), I had two small projects.
One was one day training that I was paid $500 and another was I think around $700.
So how do I pay self employment tax on that $1200 now?
This year in 2015 and here on in the future, there will be no projects at all as I'm not doing those anymore and focusing on the full time job.
Looks like it's my turn to have a bad luck with IRS.
You have to deal with them at least once in your lifetime I guess.


That may be true.
I'll have to read on self employment tax.
Still seems off as I paid correct income tax on the 1099's with my overall income and now they are asking over $2k.
May be that's for SS and Medicare as income tax is paid but those were not paid in 1099?
:S
To me, you are self employed as an independent contractor for those projects. You do not need to own a business to be self employed. Because of this, you would owe self employment taxes.

Independent Contractor Defined
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Old 02-06-2015, 08:52 AM
 
Location: Denver CO
21,047 posts, read 11,676,612 times
Reputation: 31937
So it sounds like you paid income tax but not the self employment tax. Even if it's not a full fledged business, it was still self employment income. I'm surprised that the software didn't prompt you better so you could fill out all the right schedules and have the correct calculations.

But at this point, I would go ahead and have someone review your taxes and make sure the amount the IRS is telling you is accurate. I would look for an Enrolled Agent. They specialize only in taxes and are usually a bit less expensive than a CPA, but if you got to the point of a full audit, they are authorized to appear with you. I am guessing it will be a fairly simple review on their part, they can validate the amount and then you can pay it or make arrangements for a payment plan. They might even be able to negotiate a partial settlement - getting the interest waived at least or something like that. And have them review your 2013 and 2014 stuff to make sure it's right since you don't want to rely on the software at this point.
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Old 02-06-2015, 08:58 AM
 
Location: Denver
1,149 posts, read 984,379 times
Reputation: 1445
Quote:
Originally Posted by emm74 View Post
So it sounds like you paid income tax but not the self employment tax. Even if it's not a full fledged business, it was still self employment income. I'm surprised that the software didn't prompt you better so you could fill out all the right schedules and have the correct calculations.

But at this point, I would go ahead and have someone review your taxes and make sure the amount the IRS is telling you is accurate. I would look for an Enrolled Agent. They specialize only in taxes and are usually a bit less expensive than a CPA, but if you got to the point of a full audit, they are authorized to appear with you. I am guessing it will be a fairly simple review on their part, they can validate the amount and then you can pay it or make arrangements for a payment plan. They might even be able to negotiate a partial settlement - getting the interest waived at least or something like that. And have them review your 2013 and 2014 stuff to make sure it's right since you don't want to rely on the software at this point.
Thanks.
I think I have to shell out couple hundred bucks for review and in the end it may turn out I still have to pay what IRS mentioned but hope for better outcome.

I'm not worried about paying what I owe and have some savings to cover few grands but just got caught off guard as I never had to deal with selft employment tax even though last 6 years out of 10 have 1099's.

I'll check if the online tax software still allows me to go back and fill/review 2012 tax to get better idea.
IRS says they need 60 days for any communication but only gave 30 days to pay them.
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Old 02-06-2015, 09:49 AM
 
3,492 posts, read 4,940,032 times
Reputation: 5382
Based on post #9. These income amounts should have been reported as self employment income. That is what they were. The work was paid and it was not classified as a normal W2 type of labor. The unfortunate thing for the OP is that self employment tax imposes a brutal double FICA tax because the "employer" half also has to be paid by the same person.

The taxes came up insanely high because it caused you cross some stupid boundary in our absurdly complicated tax code. Yes, anyone can do the simple math, but a smarter person doing the math finds out where the boundaries are and tries to work to avoid hitting the ones where they will see themselves get slapped with absurd rates.
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Old 02-06-2015, 10:03 AM
 
Location: The Berk in Denver, CO USA
13,965 posts, read 20,238,281 times
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Quote:
Originally Posted by Mystery123 View Post
I never had to deal with self employment tax even though last 6 years out of 10 have 1099s.
That is very worrisome.
You always have to pay Social Security and Medicare taxes on your 1099 income. And you get to pay ALL of it as there is no "employer" share.
You need a tax guy ASAP.
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Old 02-06-2015, 10:11 AM
 
Location: Denver
1,149 posts, read 984,379 times
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Quote:
Originally Posted by davebarnes View Post
That is very worrisome.
You always have to pay Social Security and Medicare taxes on your 1099 income. And you get to pay ALL of it as there is no "employer" share.
You need a tax guy ASAP.
I never had to deal means I never had to calculate self employment tax when filing tax.
What I meant was, when I added 1099 incomes in the tax software, tax increased and I assumed it added all the needed taxes.
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Old 02-06-2015, 10:15 AM
 
Location: Denver CO
21,047 posts, read 11,676,612 times
Reputation: 31937
Look at your returns and see if there is a Schedule SE in there, and also Schedule C. If you don't have those, you will need to review all of those years with a tax professional to sort it all out.
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Old 02-06-2015, 10:25 AM
 
Location: The Berk in Denver, CO USA
13,965 posts, read 20,238,281 times
Reputation: 22603
Quote:
Originally Posted by emm74 View Post
Look at your returns and see if there is a Schedule SE in there, and also Schedule C. If you don't have those, you will need to review all of those years with a tax professional to sort it all out.
Good point.
If you don't have this http://www.irs.gov/pub/irs-pdf/f1040sse.pdf for each of those years, it is going to be ugly.
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Old 02-06-2015, 12:32 PM
 
384 posts, read 407,672 times
Reputation: 685
Also note, you'll have to go back and calculate your EXPENSES off that 1099 income to do it right. I'm no CPA, but I'm betting you'll need to file amended returns, with the 1099 income, and then offset a portion of that with appropriate expenses (home office, PC usage, etc.)

I have a similar small business and mine actually gets more complicated, but I go to an accountant every year for exactly the above reason. It's not the math, it's not knowing what is and is not allowed. Just making extra money isn't all that simple these days
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Old 02-06-2015, 12:49 PM
 
Location: Denver
1,149 posts, read 984,379 times
Reputation: 1445
Quote:
Originally Posted by step33 View Post
Also note, you'll have to go back and calculate your EXPENSES off that 1099 income to do it right. I'm no CPA, but I'm betting you'll need to file amended returns, with the 1099 income, and then offset a portion of that with appropriate expenses (home office, PC usage, etc.)

I have a similar small business and mine actually gets more complicated, but I go to an accountant every year for exactly the above reason. It's not the math, it's not knowing what is and is not allowed. Just making extra money isn't all that simple these days
I never thought of including expenses for that.
It'll be tricky to determine expense amount for working at home in a computer.
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