Thursday, October 2

Working at Tax Time

One of the biggest concerns people have with working at home is the tax issue. How do your taxes work?

Not everyone who works at home will have to worry about paying taxes. If a company hires you as an independent contractor, which they will tell you, then you will be required to withhold your own taxes and (most likely) make quarterly estimated payments.

Kristine McKinley is a Certified Financial Planner and CPA. She answered many questions for me when I was starting out. She offers a great (FREE) tax course for work-at-home moms. If you're considering working at home or you've just started, I highly recommend this resource. It takes a lot of complication out of the process. When you sign up, the lessons are e-mailed to you.

Don't let the uncertainty of taxes be a reason to keep you from working at home. Here is the least you need to know:

  • If you expect to owe $1,000 in taxes (minus withholdings and credits), then you need to make quarterly payments.
  • The 1040-ES is the form you will use to file. It explains everything in IRS-lingo.
  • To figure out how much to send, estimate how much you expect to make for the year and divide it by four. You can base it on what you make the first month or two working at home.
  • Page 6 of the IRS form will tell you where to send the payments. Once they get your first payment, they will send you stubs to send with future payments.
Tax payments are not complicated once you understand how much and who to send it to. I have a separate savings account set up and I take 25% of each check I receive and deposit it into this account. It makes the process much easier and the money is there when the tax man comes!