When you get paid with no taxes withheld, you're considered an independent contractor for tax purposes. That means that you owe federal, state, and self-employment taxes on that income.



There are a few advantages to being paid as an independent contractor. First, you can deduct your unreimbursed professional expenses directly against your income. Plus, you can defer taxes on a portion of the income by setting up and contributing to a SEP IRA. You have until the due date of your tax return, including extensions, to set up a SEP for 2002, and you can contribute up to 20% of your net self-employment earnings into the SEP.



If you'll be claiming professional expenses against your 1099-MIsc income, you'll need to complete and attach a Schedule C to your federal tax return. You will also need to complete a Schedule SE to calculate the self-employment taxes due.



Best of luck in Kentucky.

--- --- --- --- --- --- --- --- ---

Replying to:

I am a third year resident (NJ) who signed a contract to start a practice in a rural community (KY)in November of 2002. I received a $10,000 signing bonus and a $1000/month stipend until I start in July of 2003. I received a 1099-Misc for 2002 with $12,000 non-employee compensation. How do I handle this with my taxes? Do I claim myself as a business? Independent contractor? Do I have to pay self-employment taxes? Do I claim this on my state and local taxes? Any help this this situation will be appreciated, thanks.

Zip Code: cpa@mdtaxes.com