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RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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How much do i get after tax on 1099 when i get 10000/month

Customer Question

Hi,

Currently my company pays me $90000 per anum. They are getting $10000 per month from client. If I skip my company and get money from the client directly and file taxes on 1099 how much do i get per month after taxes. I have wife and kid.

Thanks,
Venkat.
Submitted: 7 years ago.
Category: Tax
Expert:  RD replied 7 years ago.

It really depends on the net income you make.

Being a Form 1099 contractor you can deduct all the necessary and ordinary expenses of running this activity.

As a self-employed, you can take any of the deductions incurred in the ordinary course of your business or profession. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. SOme of these expenses are listed on Sch C and are expenses such as office supplies, travel, maintenance, repairs, postage, etc.

You can deduct home office expenses if you are carrying on your business from home. Expenses that you may be able to deduct for business use of the home may include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, painting and repairs.
Note that You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively:

  • As your principal place of business for any trade or business
  • As a place to meet or deal with your patients, clients or customers in the normal course of your trade or business

Generally, the amount you can deduct depends on the percentage of your home that you used for business. Your deduction will be limited if your gross income from your business is less than your total business expenses.

You can also depreciate computers, furniture, Equipment etc used for the purpose of business.

If you use your car in your business, you can deduct business mileage that represents your business use of the car.

Please note that If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance or vehicle registration fees.

On the net earnings you will be subject to self employment tax at the rate of 15.3%. You will get 50% of it as a deduction from your AGI.

Also, you will owe taxes on income tax on this and other income earned by you and your wife. The tax rate will depend on your overall tax bracket.

Considering the fact that you will be getting $120,000 instead of $90,000- getting it directly may be more beneficial.

 

Let me know if you have any question. Bonus and Feedback will be highly appreciated!!!

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases.

 

RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
RD and 6 other Tax Specialists are ready to help you
Customer: replied 7 years ago.
Renu,

   Thanks for the reply. I am a software engineer i work at client site, so i won't be having much expenses to claim.

So if i want to go for 1099 i have to pay 15.3% (self employment tax) on 10000 + the income tax on the rest of the of the amount correct?.

How about the employer portion of the social security and medicare tax, is that included in the 15.3%?. If not how much usually the employer pay, is it equal to the amount i pay on W2.

Thanks,
Venkat.
Expert:  RD replied 7 years ago.

Yes, you would pay 15.3% on (92.35% of $10000)+ federal tax on the taxable income calculated based on $10000 per month income minus 50% of the self employment tax paid minus other adjustments such as health insurance, IRA, SEP etc minus standard deduction/itemized deductions minus personal exemptions.

The employer portion of FICA and medicare is included in 15.3%. In a W-2 situation you pay 7.65% of the FICA and medicare and your employer pays 7.65%. In this case you will pay 15.3%.

Let me know if you have any question. Bonus and Feedback will be highly appreciated!!!

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases.

 

Customer: replied 7 years ago.
Sorry i am very poor in tax stuff. I didn't get it why we are calculating 15.3% self employment tax and taking off 50% of it.

So effectively i will be paying 7.65% of it correct?.

Also health isurance is just tax deductable right?. I mean I cannot take out the whole amount from Fed tax amount.

So here is my calculation
706 - Self employment tax
2500 - Federal tax @ 25%
600 - State tax @ 6%
500 - Health Insurance (after the tax credit)
---------
4306 Total Deductions (Approximately)

Does it look Ok :-)
Expert:  RD replied 7 years ago.

In order to give you an yearly estimate-

On Yearly self employment Income of $120,000

Your tax liability willl be

Federal tax appx. $16,500

Self employment taxes $14,895

State tax appx. $5000 (Depends on your State)

You will pay 15.3% in self employment tax and 7.65 % is a deduction to reduce your taxable income. It is not a tax credit to reduce your taxes. So it basically reduces your tax to some extent but not by 50%.

Hope this helps!

Let me know if you have any question. Bonus and Feedback will be highly appreciated!!!

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases.

 

Customer: replied 7 years ago.
Thank you very much. It is really helpful.
Expert:  RD replied 7 years ago.
Thanks,

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