How do I figure taxes for a side business (1099)?

If you are an employed doctor with some 1099-Misc income, make sure you withhold enough on your W-2 to equal 110% of your prior year’s tax liability. Set aside about 40% (rough guess) of your 1099-Misc pay in a savings account to pay the taxes next April. This covers federal income taxes and Medicare taxes of about 3% (assuming you will make more than the Social Security wage base in the current year).

If you have expenses to deduct against your 1099 income, this will reduce your taxes owed (home office, mileage, computer and desk, etc.)

After the first year, your CPA or tax software will let you know if you need to make estimated payments in addition to withholding. Your estimates will be based upon your prior year’s income. Thereforeif your moonlighting earnings will push your total taxable income beyond last year’s taxable income, set aside 40% of that excess earnings. If you don’t like to deal with estimated tax payments, you can adjust your W-4 to withhold enough more to equal your estimates.

If you’re already in the 39.6% bracket, you’ll owe a little more than you’ve set aside. If you’re in a lower bracket, you may end up saving more than you’ll need, but that’s better than having to scramble to find tax money on April 15, isn’t it?

State laws will vary and may add to the 40% estimate used above.

6 Huge Benefits of IC Income

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