HOLLYWOOD! ACTORS AND ACTRESSES RECEIVE 1099 INCOME.
You finally made it. You got the part that’s going to pay well, maybe make you a star. Surprise! You’re also going to earn enough to be required to file tax returns and pay taxes on your earnings.
Unless you’re in an arrangement to have taxes withheld from your pay, most of you will be considered an independent contractor, also known as a 1099 vendor. That means you’re responsible to pre-pay your estimated income tax owed for the year in which you’ve earned the money.
These are called estimated tax payments. You’re required to make these payments at a minimum by April 15, July 15, September 15 and January 15 of the following year. Some taxpayers choose to break the payments down into monthly amounts to make them easier to pay.
If you have earnings for the previous year, IRS requires that you make the payments in the amount of one fourth of the total tax assessed on the previous year’s tax return. This is not the amount you owed or the amount you might have gotten as a refund, it is the amount of tax you were required to pay based on IRS’ tax tables when the return was prepared. The figure will be on the line referencing “total tax”.
But wait a minute, you got that great part, you’re going to make a lot more money this year. You’re going to owe income tax and self-employment tax for Social Security. What now? Tax Law Center recommends that if your income is going to take a substantial jump that you set aside 25% of your income to cover your taxes.
The payments can be made via check or money order and mailed to IRS with Form 1040-ES. IRS prefers that you make your payments electronically, which can be done via their website.
Being responsible and making these payments during the tax periods required saves a lot of grief when filing the tax returns. You won’t have a balance due that you might not be able to pay.
One reminder: State income taxes also require pre-payment. California uses the Franchise Tax Board form 540-ES. Some of that 25% you’re setting aside will need to be paid to the state taxing entity.
If you do find yourself in a position where you owe money to IRS, Tax Law Center has decades of experience in helping taxpayers resolve or even reduce the debt owed for taxes. Contact us, we can help.