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So I will be taking a job in NC with the VA. Est income at 320,000. I should hit the social security limit with that job. I am estimating my independent contract work will be in the neighborhood of 8-10k/month. I am assuming I can deduct Medical costs, business expenses like office, internet, computer, phone, etc (maybe 10k total?). I'll be also looking to setup a solo 401k or a SEP-IRA. I figure 401k might be better since I could do profit sharing into it at 31k? versus a SEP-IRA where I am capped at 18k. I'll be maxing out my 401k at work with the employer match.
So, if I assume that I am doing this right.
I would do 120,000 - 10,000 (Deductions for business costs) - 31,000 (401k) - 20% for taxes to get my net income for year?
So I will be taking a job in NC with the VA. Est income at 320,000. I should hit the social security limit with that job. I am estimating my independent contract work will be in the neighborhood of 8-10k/month. I am assuming I can deduct Medical costs, business expenses like office, internet, computer, phone, etc (maybe 10k total?). I'll be also looking to setup a solo 401k or a SEP-IRA. I figure 401k might be better since I could do profit sharing into it at 31k? versus a SEP-IRA where I am capped at 18k. I'll be maxing out my 401k at work with the employer match.
So, if I assume that I am doing this right.
I would do 120,000 - 10,000 (Deductions for business costs) - 31,000 (401k) - 20% for taxes to get my net income for year?
This is new to me. Thank you
I am assuming that you mean $120K vs $320K If I'm correct, you will have to pay both the employer and employee "contributions" to Social Security and medicare as well as ordinary income tax.
I really really suggest that you consult a "tax professional" since you say that you are "new to this".
You don't want to get caught without enough money to cover ALL of the taxes you must pay. A professional can also help you keep records of your expenses and suggest business deductions that may be appropriate for your situation. He should save you his fee in discovered deductions and you will be aware of things that can be deducted throughout the year.
I'm confused with the title of your thread - " W2 and Independent contractor" - what are you going to be? Or are you continuing to work for an employer on W2 while also being a contractor on a side? Or did you work on W2 part of the year and will be an independent contractor for the rest of the year?
When my husband switched from W2 to 1099 (contract) mid year last year, I did a very close estimate by pretty much filling out 1040 along with Schedule C. I've worked for a tax preparer for several seasons, so I'm not scared by IRS forms. If you don't want to read into the forms, I suggest seeing a tax professional.
Keep in mind that you need to pay estimated taxes. At this income, a good ball park estimate would be to say that 45% of 120K will go towards taxes and IRA/401k, and 55% will be your net. 20% for taxes is WAY to low, you will be paying 15.3% of SS/Medicare, and will be in a 25% tax bracket for Federal if you are single, unless you have some huge deductions you can take. Don't forget State income tax.
At about the same 120K my husband's take home is about 6K, after we leave enough for estimated tax payments and put 20% of business income into SEP IRA (we are mulling over doing Solo 401K next year).
That'll tell you what your estimated tax would be. You've already missed 2 quarterly payments.. And they will fine you (Not bad, but..) for missing quarterly payments.
So I will be taking a job in NC with the VA. Est income at 320,000. I should hit the social security limit with that job. I am estimating my independent contract work will be in the neighborhood of 8-10k/month. I am assuming I can deduct Medical costs, business expenses like office, internet, computer, phone, etc (maybe 10k total?). I'll be also looking to setup a solo 401k or a SEP-IRA. I figure 401k might be better since I could do profit sharing into it at 31k? versus a SEP-IRA where I am capped at 18k. I'll be maxing out my 401k at work with the employer match.
So, if I assume that I am doing this right.
I would do 120,000 - 10,000 (Deductions for business costs) - 31,000 (401k) - 20% for taxes to get my net income for year?
This is new to me. Thank you
You need a CPA to work through all this.
If you're really making $320K in W-2 money, you'd be paying 40%+ in taxes on any 1099 money you make. 33% Federal. 2.9% Medicare. 5.75% in NC state income tax.
I'm confused with the title of your thread - " W2 and Independent contractor" - what are you going to be? Or are you continuing to work for an employer on W2 while also being a contractor on a side? Or did you work on W2 part of the year and will be an independent contractor for the rest of the year?
When my husband switched from W2 to 1099 (contract) mid year last year, I did a very close estimate by pretty much filling out 1040 along with Schedule C. I've worked for a tax preparer for several seasons, so I'm not scared by IRS forms. If you don't want to read into the forms, I suggest seeing a tax professional.
Keep in mind that you need to pay estimated taxes. At this income, a good ball park estimate would be to say that 45% of 120K will go towards taxes and IRA/401k, and 55% will be your net. 20% for taxes is WAY to low, you will be paying 15.3% of SS/Medicare, and will be in a 25% tax bracket for Federal if you are single, unless you have some huge deductions you can take. Don't forget State income tax.
At about the same 120K my husband's take home is about 6K, after we leave enough for estimated tax payments and put 20% of business income into SEP IRA (we are mulling over doing Solo 401K next year).
My interpretation is that the OP will have W-2 AND 1099 income. To avoid an IRS underpayment penalty, you have to pay in during the tax year EITHER 90% of your tax liability for the current year OR an amount equal to or greater than your (known) tax liability for the previous year. What this means is that if your income is on an upward trajectory, all you need to do in order to avoid an underpayment penalty is to pay in, before Dec 31, the amount of last year's tax liability. Best way to do this is by having your W-2 employer withhold an amount sufficient to meet this requirement.
If you do the above when you have both rising income AND 1099 income, while having just enough withheld to avoid an underpayment penalty, you'll owe a bunch of tax by April 15 and will need to set aside enough money to pay the remaining tax you owe.
A W-2 employer will withhold and remit Social Security taxes up to the cap, so you'll have to figure in Medicare tax (no longer subject to the cap). Not sure how that works when 1099 income is subject to Medicare tax but NOT Social Security tax.
If you're really making $320K in W-2 money, you'd be paying 40%+ in taxes on any 1099 money you make. 33% Federal. 2.9% Medicare. 5.75% in NC state income tax.
Marginally, yes. I mean, that's about 4x what I'm making so effective is going to be closer to marginal than it is for me. Marginally I'm up over 40% as well while effective is around 22%. I don't need to save 22% of what I gross for Sam as that's effective tax rate so things like my business expenses, health care, 401k contributions all make a lot of gross income nontaxable.
Thanks. I worked with a local CPA (she does taxes on the side from her current job), but close to reitrement. Old CPA I've reached out, but would like to find a local guy to help me going forward.
Its a paycut from where I'm at now with my W2 employment. 1099 work is new for me.
Overal salary may be increased, but net income likey to be done (going from a state without income tax to one with) plus my W2 employer is federal, so they will withold more like FERS, etc.
That'll tell you what your estimated tax would be. You've already missed 2 quarterly payments.. And they will fine you (Not bad, but..) for missing quarterly payments.
If the job didn't start yet, then there wasn't any income for prior 2 quarters, so no payments needed for those quarters. You only pay based on what you earned for the date ranges which are indicated for those quarterly payments.
Thanks. I haven't started yet. But I have an idea of what I'll need to set aside just to know what kind of income I could expect from this endeavor. I'll be using a cpa to help me with all of this though.
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