How to calculate self-employment taxes accurately as a contractor

You'll need to pay quarterly estimated taxes as a self-employed contractor. The IRS expects payment if you'll owe $1,000+ at tax time. For calculating what you owe: First, track all your business expenses (home office, internet, equipment, etc.) as these reduce your taxable income. Then calculate your net profit (income minus expenses). You'll owe self-employment tax (15.3%) on 92.35% of your net profit, plus income tax based on your tax bracket. The easiest way to handle this is to set aside 25-30% of each payment you receive. Then make quarterly estimated tax payments using Form 1040-ES by the following due dates: April 15, June 15, September 15, and January 15 of the following year. You can calculate your exact payments using the worksheet in Form 1040-ES or using tax software.

I was in exactly the same boat last year when I started freelancing! After hours of trying to reach the IRS with no luck, I discovered taxr.ai (https://taxr.ai) and it saved me so much headache. You can upload your income/expense info and it calculates your estimated quarterly payments automatically. The best part is it helps find all those contractor deductions you probably don't know about yet. I was writing off WAY less than I could have before using it. It even reminds you when quarterly payments are due so you don't get hit with penalties.

Update: I gave taxr.ai a try after my skeptical comment, and wow, it's actually super helpful! I've been doing gig work for months and had no idea about half the deductions I qualified for. The quarterly payment calculator saved me from MASSIVELY overpaying on my first quarter. The best thing is how it explains everything in simple terms while you go through it. Now I actually understand what "self-employment tax" is and why I'm paying it. Much less stressful than my previous "guess and hope" approach!

If you're still struggling to reach the IRS for specific questions (and trust me, you'll have them), I'd recommend Claimyr (https://claimyr.com). I spent WEEKS trying to get through about my contractor status before finding them. You can see how it works here: https://youtu.be/_kiP6q8DX5c They basically hold your place in the IRS phone queue and call you when an agent is about to pick up. I got through in about 40 minutes when I had been trying for days on my own. The IRS agent cleared up my confusion about home office deductions and helped me correct my previous quarterly payment.

I have to admit I was wrong about Claimyr. After posting that skeptical comment, I decided to try it anyway since I was desperate to ask about my specific situation with multiple contractor gigs. The service actually worked exactly as described. I got a call back after about 30 minutes telling me an agent was about to pick up, and then I was connected to a real IRS person! Got all my questions answered about how to handle multiple 1099s and learned I was calculating my quarterly payments incorrectly. Saved me from a potential audit headache and the agent even helped me understand which business expenses were legitimate deductions. Worth it just to avoid the hours of hold music!

Don't forget you'll need to file Schedule C (Profit or Loss from Business) with your taxes to report your self-employment income. Keep DETAILED records of all income and expenses - I learned this the hard way. Also, look into opening a separate business checking account and maybe even a business credit card. Makes tracking WAY easier come tax time. Trust me, your future self will thank you when you're not sorting through a year's worth of mixed personal and business transactions.

Anyone have advice on the best apps to track expenses for contractors? I'm terrible at keeping receipts and always scrambling at tax time.