confused!

[asscollection]

So I have a job teaching some summer day camp classes. Thing is, I'm being employed as an "independent contractor" which I guess is like being self-employed (?) so I'm having to take 30% out of my paycheck myself. I think. I'm planning on saving all my gas, supplies, and food receipts so that can be all tax deductible later

Comments

[cmarie14]

I've never heard of one, but I'm guessing that if he said it the way you typed it, he meant a Certificate of Deposit. You'd get a return of maybe 4%? (I'm not really sure.) And I'm not sure you can do such a short CD, but you have until next April before you'd have to take it out. :)

[asscollection]

Yeah, the shortest CD I've ever heard of is six months.

Thing is, I need most of the money I make this summer to pay tuition costs in August, so if I do go with a CD then I won't be able to put very much in there. :\

[lapenn]

why not just do the CD with the "save for taxes" money and keep the rest in a high yield savings account that can be access for your August tuition?

[lapenn]

* accessed

[lapenn]

You can definitely do one or two month CDs. Might that be useful?

I'd go for a minimum 6 month one -- you can do it for 5% at ING. If you'd like an ING referral to start an account there, let me know (for a minimum of $250 deposited, you can get $25 as a reward if you have a referral, and I'd get $10 for referring you). ING has 4.5% right now, so that's a fairly decent return rate that will let you make money off of your earnings before you have to use it for taxes.

[kittybat]

I was just going to recommend HSBC.

[sara_k_s]

My bank does short-term CDs starting at 7 days. There are a few problems with doing this:

• Many banks have a minimum deposit amount for a CD. My bank (Key Bank, which sucks, by the way, but I'm using as an example because that's where I can most easily get numbers) has a $2500 minimum, and you may not be looking to invest quite that much. You may be able to find a bank with no minimum, though.
  
  
• You really won't earn much with a small amount of money in a short-term CD and the kind of interest rate you'll get (at my bank, the interest rate for a 32- to 89-day CD is 1.485, but if you're willing to go 90 days, it's 3.924.
  
  
• You'll be taxed on your CD earnings, which will further reduce your earnings, and be an added headache on your taxes.

Here's what you would get from a 2-month CD at my bank with the minimum $2500 deposit:

Interest rate: 1.485%
Value at maturity: $2,506
Total interest earned: $6
Taxes you will owe: $2
Interest after taxes: $4

Here's what you would get from a 3-month CD with the minimum $2500 deposit:

Interest rate: 3.924

[lapenn]

If your interest is that low, I really recommend looking into starting a high yield savings account. Both ING and HSBC have much better rates. I'm currently getting 4.5% at ING (and 5%+ in CDs with a minimum of 6 months but no minimum deposit).

[sara_k_s]

The above rates are for short-term (less than 6 months) CDs. The longer-term CDs have better rates, but the OP was asking about short-term CDs, specifically 60-day CDs, because she will need access to the money in August. What you said was kind of my point: the interest rate for short-term CDs is too low to make them worthwhile. I agree that a high-yield savings account would be a better option, both because it could earn more interest, and because it would allow access to the money when needed without penalty (as long as there's no minimum balance required for the savings account).

[music_l0ver]

I don't think you'll have to pay taxes unless you make a certain amount. And if you're young, and single, you shouldn't have to worry about paying any taxes. I know you have to file as an independent contractor when you make at least $600, but I know that I can make up to around $8,000 and not worry about having to pay taxes.

[zhelana]

No, if you're independent you have to play a special tax that everyone else's employer is paying for them - essentially the SSI tax that would be matched. And you can't get out of it. Shouldn't be 1/3rd, but it's still a LOT of money. It nearly broke me last year.

[music_l0ver]

Interesting considering I've never had to do that.

[zhelana]

I read every page on the IRS site that could be vaguely related and spoke to a couple professionals to see if I could get out of it. 99% chance you're a tax cheat and don't even know it... I only found out 'cuz my dad didn't know about it and got audited. Big trouble.