Dear all:
I have did some search on this newsgroup but didn't find the answer
that I was looking for. So here is what I know and some background
info:
1. I understand that most of the time, consultants are considered as
independent contractors. That designation makes me responsible for
paying all of taxes myself by making estimated tax payments quarterly.
This tax will include income tax on the profit from the business at
whatever tax bracket you fall into as well as self-employment tax at
the rate of 15.3%.
2. Tax-bracket-wise, currently my wife and I have combined annual
income of slightly over $200K (and yes we are in the United States,
based in SF bay area). We also file tax together.
3. I already have a regular full-time job, but am doing some side-
consulting and is expecting to receive somewhere between $5000 to
$8000 of consulting income this year (and possibly next year).
4. I have also read the "Estimated Taxes" section from IRS:
http://www.irs.gov/businesses/small/article/0,,id=110413,00.html
My questions:
1. I don't fully understand how I should estimate tax payment
"quarterly?" Does that mean that I need to pay this self-employment
tax quarterly or it is just a form that I have to re****t "estimated
tax" on quarterly basis for my consulting income? Which form should I
be using?
2. For self-employed consulting business, could I deduct business
expenses (such as business travel, office supplies) from my tax/
income, or do I really have to setup a LLC or consulting firm to do
that?
3. Will I be better off if I continue to have this kind of consulting
income for more than $5000 each year, to simply setup some kind of
consulting firm (LLC? Sole proprietor? partners? S cor****ation?) for
tax purposes? What's the pros and cons of doing this?
Many thanks! :-)
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