Today Selena in Los Angeles is taking a bold career step. “After many years of working as a salaried employee, I have decided to take the plunge and switch to temporary employment through an agency that specializes in temporary placements for clinical social workers.
I am reviewing the contract they want me to sign, and I am aware that I will be an Independent Contractor. I know that this will have tax ramifications for me and my husband, and I want more information.”
And she has a lots more questions…
If you’re going to be an independent contractor, you’re basically in business for yourself.
In the City of L.A. that means getting a business license and paying L.A. about $120 per year, minimum. http://www.lacity.org/finance/offbt2c.htm
You will need to be filing and paying quarterly estimated taxes. Your estimates will include the 15.3% of Self Employment taxes (Social Security/Medicare) you’ll be paying on your profits.
You don’t need to buy Worker’s Compensation coverage unless your contract calls for it. Generally, business owners are entitled to be excluded from those policies.
As to paying into State Disablity Insurance? Yes, you can do that. But it is a bit expensive. Unlike the $700 or so limit you pay as an employee, when you’re self-employed, the rate is over $1,000 annually. And you only get benefits for about 6 months – a year if you become disabled.
Talk to a good insurance agent about your own disability policy. For the money, it’s a much better value.
You want to know what expenses you can deduct from your Schedule C? Honestly, just about anything that you can objectively document is a legitimate business expense.
IRS’s Publication 334 will give you the basics.
But if you want a good, easy to mark up and use guide to dealing with your business, pick up a copy of Jan Zobel’s book: Minding Her Own Business :
The Self-Employed Woman’s Guide to Taxes and Recordkeeping
For under 10 bucks, it’s a terrific bargain!
Or of course, TaxMama’s book – Small Business Taxes Made Easy
And remember, you ARE in business, so that means you ought to have a separate bank account, you should be keeping books, etc. Get ready for the adventure of your life!
Naturally, you’ll find answers to all your questions about being in business and other tax information, free. Where? At TaxMama.com
- Ask TaxMama :: Where taxes are fun and answers are free
- City of Los Angeles :: Business Tax Information
- Ask TaxMama Articles :: How to Pay Your Estimated Taxes
- State Disability Insurance :: Read about Elective Coverage
- IRS Publication 334 :: Tax Information for Businesses
- Jan Zobel’s book :: Minding Her Own Business :
- TaxMama’s book :: Small Business Taxes Made Easy