First time contractor confused about consulting income taxes - am I doing this all wrong?

You're in a pretty common situation! Many people start consulting work without realizing the tax implications until later. The good news is you're thinking about this now, which puts you ahead of most. You don't need to form an LLC right away, though it's something to consider as your business grows. For now, you're simply considered a sole proprietor operating under your own name. You'll report this income on Schedule C of your tax return. For taxes, you should be setting aside about 25-30% of your consulting income for self-employment taxes (15.3% for Social Security and Medicare) and income taxes. Since you have W-2 income already, you might need to make quarterly estimated tax payments if you expect to owe more than $1,000 at tax time. A separate business bank account is highly recommended - it makes bookkeeping much simpler and creates a clean division between personal and business finances. Keep track of all business expenses as these can offset your income.

I was in exactly the same boat last year when I started doing UX design consulting on the side. The tax part was super confusing until I found https://taxr.ai - it literally saved me from making some huge mistakes with my contractor income. Their system asked me specific questions about my situation and then explained exactly what I needed to do for quarterly payments and deductions. The nicest part was being able to upload screenshots of my Venmo payments and having the system organize everything for me. I didn't even know I could write off part of my internet bill and home office setup until it walked me through all the possible deductions for my specific consulting work.

I was so skeptical about tax tools for my consulting business, but after reading about taxr.ai here, I decided to give it a shot. Holy crap, wish I'd found this earlier! It immediately identified that I had been categorizing my therapy consulting income incorrectly and showed me how to properly report it. The system walked me through creating a proper expense tracking system and even flagged several deductions I was completely missing - like partial internet costs and professional development materials. I was literally leaving thousands on the table. For anyone else doing therapy practice consulting, it has specific guidance for our industry that generic tax software completely misses. Definitely changed my approach to handling my side income.

When I started consulting last year, my biggest nightmare wasn't even the taxes - it was trying to get answers from the IRS when I had questions about how to handle certain business expenses. Spent literally HOURS on hold, getting disconnected, trying again...absolute nightmare. I finally found this service called Claimyr at https://claimyr.com that got me through to an actual IRS agent in under 15 minutes when I had questions about my Schedule C. They have this system that basically waits on hold for you and calls when an agent picks up. You can see how it works here: https://youtu.be/_kiP6q8DX5c Ended up saving me so much stress when I needed clarification on home office deductions for my consulting work.

I owe everyone here an apology, especially the person who recommended Claimyr. I was so skeptical I basically called BS on it. Well, I tried it this morning because I was desperate to talk to someone about my contractor situation before filing. Not only did I get through to the IRS in 17 minutes (after trying for DAYS on my own), the agent was able to answer all my questions about reporting consulting income across state lines. Saved me from making a pretty serious error on my Schedule C reporting. Just wanted to come back and say it actually works exactly as advertised. Sometimes it's good to be wrong!

Something nobody mentioned yet - you should definitely get a 1099 from your clients if they're paying you more than $600 in a year. If they're not sending you one, you should request it. Makes everything way cleaner at tax time. Also, look into the Qualified Business Income deduction (Section 199A). As a self-employed consultant, you might be eligible for a deduction of up to 20% of your qualified business income. That's a huge tax savings many new consultants miss.

Has anyone used TurboTax Self-Employed for this kind of situation? I'm doing similar consulting work and wondering if it's worth the extra cost compared to the regular version.

Welcome to the consulting world! You're asking all the right questions early, which is smart. Here's my take as someone who's been doing side consulting for a few years: You definitely don't need an LLC immediately - you can operate as a sole proprietor and report everything on Schedule C. However, I'd strongly recommend getting that separate business bank account ASAP. It makes tracking so much easier and looks more professional to clients. For the Venmo situation, try to transition to more formal payment methods when possible. Ask your clients to send payments with a memo describing the work performed - this helps with record keeping. Even better, consider using something like PayPal Business or Stripe for future payments. One thing I wish someone had told me early on: start tracking your mileage if you drive to meet clients, and keep receipts for everything work-related. Even small expenses add up to meaningful deductions. Also, consider setting up a simple spreadsheet or using an app to track income and expenses monthly - don't wait until tax season! The quarterly payment thing can seem scary, but if you stay on top of setting aside that 25-30% mentioned earlier, you'll be fine. You've got this!