I don't understand this at all regarding my tax return this year

[belladonna]

I actually made a little LESS this year and I ended up paying more taxes. WTF?? Could it have to do with the fact that I'm self-employed and a contractor now? Does being self-employed move me up into a higher tax bracket even if I make LESS money??? Color me confused :thumbsdown:

Anyone out there have experience with this and perhaps understand something that I'm missing???

[Little Wing]

1. How many taxes were taking out of your contracting checks?

Typically it's less than standard payroll, if any at all.

[belladonna]

4. I compared it with last year and about the same amount was taken out

That's the first thing I thought of actually, that not enough taxes were paid in and that made the difference. That's not it at all, so I really have no clue and can't talk to the accountant who did my taxes until Wednesday.

[underpants]

2. No idea. Did you pay during the year or just now?

The question I am asking is are you talking about the total tax "bill" or just what you have to write a check out for now?

[belladonna]

5. Total tax bill

I'm paying more taxes on less money... it makes no sense. I guess I'll get my answer Wednesday :shrug:

[Beer Snob-50]

3. Did you pay estimated taxes?

this would mean taht you pay more at the end of the year as well as penalties.

You also pay that lovely Self employment tax of 15.7% (this is your Social Security Tax).

[belladonna]

6. Hmm, that could be it

I'm new to all of this, which is why I had an accountant do my taxes this year.

[Beer Snob-50]

7. If you make over $400 (I believe that is the amount)

you pay this tax.

[NewJeffCT]

8. When you're not self-employed...

Both you and your employer have deductions for your wages (medicare maybe?)

However, when you are self-employed, or working as a contractor, you do not have the employer paying your share of the medicare, so you have to pay double to make up for the loss.

i.e, if you work for the ABC company:
50,000 gross income
- 15,000 withholding for income tax (30%)
- 3,000 withholding for medicare (6%)
32,000 remaining

However, ABC company is also paying 3,000 in medicare tax for having you on their payroll. If you are self-employed, you have to make up the difference:

45,000 gross income
- 13,500 withholding for income tax (30%)
- 5,400 withholding for medicare (12%)
26,100 remaining

So, by being self-employed, you end up paying $18,900 in tax vs only $18,000 if you worked for ABC company.

[belladonna]

9. Thanks to you and the poster above you!

That makes perfect sense and I'm sure that, if I'd been a little more patient, my accountant would have explained this to me on Wednesday! Thank for the heads up :hi:

[Deja Q]

10. It makes sense except these laws double-dip the entreprenuer...

But nothing's perfect...

[NewJeffCT]

11. the DU accountants can explain it better than me

Underpants, and one young woman here are in the field and probably have more knowledge than me.

I'm more in financial reporting than Accounting

[belladonna]

12. It does kinda suck

I ended up paying way more, if this indeed the SS and Medicare tax, than I did last year. Ah well, at least I get to stay home and work... I guess it's worth it :shrug:

[GoddessOfGuinness]

13. Social Security tax...

Your schedule c is where you want to have the most expense. We found that itemizing deductions and donating to charities did nothing to help our situation. The trick is to spend as much as you can on your business so you can pay less social security tax. It sucks.