First time contractor question

[wjarrell]

I've been logging for 3 years for the same company and been on payroll. This year I'm going to contract timber fall for the same company. I'll be getting paid by the thousand and then get 1099 at the end of the year. How much of a percentage of my earnings should I put away for taxes? For example if I make 40,000 in a season, should I put 20% or 30% away for taxes? I just want to make sure I have enough set aside when the time comes to pay up. This will be the first year I get 1099. Thanks for the tips guys.

 

[bnmc98]

What state are you in? If your state has an income tax then you will need to set that aside and can get the tax tables from them either online or have them send them to you. Same for federal taxes, you will need to use the charts based on how often you get paid and set that aside as well. This is, all after you have decided how many (withholding allowances) you will have, there is a worksheet for that as well. (for example I have 4 kids and a wife and myself and my allowance is 7) There is also a self employment tax of 15.3 percent so you will have to hold that out as well. don't forget your liability insurance as well, I break that down and withhold it as well monthly. also if you are paying work comp then you need to pay that as well unless you plan to go work comp exempt. Write down all your expenses and deductables (would be really good to visit with an accountant so you can get an idea of what you are entitled)

basically all the fed info is on the IRS website and there is a PDF you can download. Your state should have the other stuff as well on there website.

I would recommend that you get yourself a business name and register that as well, some states require you to have that to get work comp exempt etc...
dont worry about a FEIN # at this point wasted money in my opinion, just use your social security number.

As far as setting the money aside to pay taxes, you are supposed to pay quarterly after you get an idea of how much you will be making consistantly, usually after the first year you will know that and there should be no fine for not paying quarterlies the first year.

Not an accountant so someone can feel free to correct me, just what I had to go through.

Good Luck.
Brian

 

[northmanlogging]

Your best bet is to contact a certified public accountant, or cpa. They can give you a better idea as to what is required of you and they are actually licensed for this stuff.

Otherwise, 25% for federal, and more for state income if it applies. The smart thing would be to but that money into a separate account, and not touch it until tax time shows up. I repeat the smart thing is to not touch it.

 

[wjarrell]

Thanks for the replies guys. I'm cutting in California. I have my License Timber Operator certificate as well as liability insurance and then health is through my wifes work. I was told by a tax guy at H&R Block that I should set aside 20% for both federal and state but I thought it was going to be a lot more. He also didn't mention self-employment tax so I'll have to look into that.

 

[bnmc98]

Yeah, I wouldn't blanket save. I prefer to know how much I owe so that I don't have to cough it up at the end of the year when I don't have it if I end up making more, and, I need all the money I can get now so I don't want to put too much away when I could be using it. There is all the information out there to get it exact, its already printed for you, you just need to do a little research. Some guys I know also estimate there deductions into their quarterlies and pay only what they will actually owe after deductions but I am not that ambitious.

 

[madhatte]

Your best bet is to contact a certified public accountant, or cpa. They can give you a better idea as to what is required of you and they are actually licensed for this stuff.

I wish somebody had given me that advice when I tried (abortively) to run a contract outfit cruising timber. I got myself pretty deeply in arrears because I had no idea what I was doing.

 

[Philbert]

Talk to an accountant and a lawyer. Also, look for SCORE 'going into business' seminars in your area. Check with your State to see if they offer something similar.

You need to consider: income taxes; social security and Medicare (including employer matching portions); work comp insurance; liability insurance; wear on your equipment; etc.

They may also tell you about expenses that you did not know you could deduct.

Not trying to discourage you, but hoping to help avoid 'surprises' later on. There may also be the need to file a bunch of forms.

Running a business is different from just doing the work.

Good luck (sincerely)

Philbert

 

[HuskStihl]

I would put aside 25% the first year. That should be fine for ballpark 40k with standard deductions. I'll bet you'd get a bit back at years end. That will give you a baseline to adjust for next year. Granted, in principle you'd likely be giving the govt a tax free loan, but since interest rates are so low currently, the money you could keep in an account would unlikely to make you enough in interest to pay the accountant you would need to tell you more accurately what to set aside. Also, withholding forces you to be more frugal, and if you can save 2/3rds of u'r refund check you'll be doing yourself a huge favor down the road.
All the best

 

[Joe46]

While nobody else has mentioned it. I trust that you're in wood that's worth cutting on a per thousand basis well into the future. I have no idea what you getting paid, but the worse that can happen to you is getting stuck in dog hair patches. When I was cutting I wouldn't bother bidding on them. Day wage was a better way to go. Get real good at doing P&L also. You driving your own vehicle, supplying your own saw gas&oil? Record all your expenses!

 

[cupar]

I pay 37% a year.

 

[wjarrell]

Thank you everybody for the help so far. My boss wants to pay me $20 a thousand which will come out to about $100 a load and we are hoping to get 3 to 4 loads a day. (I'm going to make a counter offer) When I talked to my tax guy the other day he said that because I was working for someone, that I wouldn't need self-employment tax but I'm going to ask someone else just to make sure.

 

[lfnh]

I've been logging for 3 years for the same company and been on payroll. This year I'm going to contract timber fall for the same company. I'll be getting paid by the thousand and then get 1099 at the end of the year. How much of a percentage of my earnings should I put away for taxes? For example if I make 40,000 in a season, should I put 20% or 30% away for taxes? I just want to make sure I have enough set aside when the time comes to pay up. This will be the first year I get 1099. Thanks for the tips guys.

1099 = 1099 = SE
paid by the hour, by the stick, by the load- and get a 1099, still self employed.

other question comes to mind is what benefits are you giving up, going 1099 ?

that +++15% se always sucked.

 

[wjarrell]

that +++15% se always sucked.

Forgive me I'm not sure what that means.

 

[northmanlogging]

You just dumping and running or limbing and bucking?

Also I only get around 3-4 mbf per load (self loader eats a bit of weight) I wouldn't recommend counting on getting 5 mbf per truck or 4-5 loads a day.

Also who and how are they keeping track of what your are cutting.

And contract cutting equals self employed, they just pay you a lump sum, you deal with L+I, insurance, taxes, biz license, etc, etc, etc...

 

[bnmc98]

When I talked to my tax guy the other day he said that because I was working for someone, that I wouldn't need self-employment tax but I'm going to ask someone else just to make sure.

Well, are you self employed or not, a self employment tax is for self employed people. If you have a business name and are paying your own taxes and if they are not paying your SS and medicare for you, I would not listen to that guy.

 

[wjarrell]

You just dumping and running or limbing and bucking?

Also who and how are they keeping track of what your are cutting.

I will be single jacking. I'm not sure how I'm going to keep track yet.

 

[Gologit]

wjarrell...if you have a tax guy make sure he understands logging. Talk to your boss and see who he uses or ask the other fallers. Unless the tax guy is familiar with logging and knows all the little ins and outs of how to squeeze a dollar out of this business he might not be as helpful to you as you need. If you're falling for just one outfit it won't be too bad but if you start contracting out and fall for a bunch of different people your taxes can turn into an absolute nightmare. That's just one of the reasons your tax person should have a good handle on this business.

It's not hard to make money logging but it's hard to keep the money you'll make. A good tax person will understand busheling and he'll be familiar with how much your income will vary from day to day. Keep track of every nickle you spend and find out early what you can deduct. Make that a priority.

If you're busheling in good timber you might make some money if you know what you're doing, you don't break down, the weather cooperates and you hustle. If you're in dog hair, steep ground, brushy ground, or scattered wood you might break even. Maybe.
If whoever your boss is logging for drops the rate he might have to drop yours. In fact, I think you can count on it. Pay cut, ready or not. Will you be getting paid woods scale or mill scale? There can be a big difference. You'll find out soon enough.

On saving back some money for taxes...it's the only way to go. I can't give you a concrete percentage because I don't know how you're set up but I think 25% is an absolute minimum. Stash everything you can for the first year or so until you get a feel for the job and the cash flow.

If you want, PM me the name of who you're working for. I might know him.

 

[treeslayer2003]

good advice..........it took me about 5 years to find a guy here that could really help........forget h&r block and those type of outfits.
as a logger, i rarely ow anything any more, to many expences. if i was just falling it may be different..........less deductions.
i would talk to Bob on this, hes in yer state and probly has a good handle on things there.

 

[jwilly]

I've seen quite a few fellows around here work as contract cutters only to find out at the end of the year they made no money (tax wise). I was a general contractor for many years with two employees but was still considered self employed. The 15.3% is what I had to pay for SS and MC and was based on what I earned after deductions. It was shocking to see how little I actually made. A lot of money passing through my hands but not much stuck.

As others have said, you need to take at least 25% of your paycheck and set it aside. A separate account is the way to go. It is handy for emergencies, like when your truck breaksdown or your saw blows up.

 

[hammerlogging]

yes, get an accountant, you'll know you've found a helpful one because the accountant will steer your decisions to make sure you're prepare

Contracting- its great, but don't look at loads per day, you need to look at loads per month or year. How do those numbers look? Can you fill in the gaps- like when jobs are opening and closing or the logger is moving? Rain days? If you have a cutting partner you could cut those two, but then you'd need more contracts....