Independent contractors are responsible for their taxes, but how do they pay? This guide shows how to file taxes as an independent contractor.
Have you ever wondered, “How does an independent contractor pay taxes?”
If you’re joining the 57 million Americans who freelance, you might be dreading your first year of taxes. While being your own boss comes with plenty of perks, one big downside is that taxes will be harder than what you’re used to when filing a W-2.
The good news is that paying your taxes doesn’t have to be an impossible feat, especially since you can file taxes online at your convenience. Keep reading to learn some important tips on how to file taxes as an independent contractor.
You’ll Have to Pay Quarterly Estimates After Your First Year
If it’s your first year paying taxes as an independent contractor, you don’t have to worry about being penalized for not paying quarterly estimates. The government gives newcomers this grace period to get adjusted to this career change.
However, after your first tax year is over, you’ll be responsible for paying quarterly taxes. Setting up a separate bank account to hold 25-30% of your income should be plenty to keep you covered.
Expert Bookkeeping Skills Are a Must
Now that you’re your own boss, you’ll also be in charge of keeping accurate records of all of your finances. This should include everything that you earn and spend throughout the year.
In some cases, independent contractors can receive 1099 forms from various companies they work with, but businesses aren’t required to send them. As a result, it’s always better to keep track of everything yourself because each business will still report your income to the IRS. Learning how to make 1099 pay stub can be a big help with keeping all of your records in check.
Don’t Forget to Look into Deductibles
One of the benefits of taxes for independent contractors is that you can whittle down the amount you owe by including deductibles in your report. Some of the many expenses that you can deduct from your gross earnings include a home office, supplies, transportation and lodging expenses, utilities, and marketing fees.
One crucial thing to remember is that you should never enter any false deductibles because you can get into a lot of trouble if you’re ever audited.
Paying an Expert Can Be a Worthwhile Investment
Taxes for freelancers can be overwhelming, especially since the threat of an audit always looms. If you don’t feel confident doing your own taxes, it can be a smart idea to pay someone else to do them for you. To get the job done, you’ll need to come prepared with all of your financial records and personal information that will get entered into your file.
There are also plenty of helpful online programs that can help walk you through the filing process if you don’t want to pay extra for an accountant. The great news about both of these options is that these tax expenses can be deducted when you file the following year.
Also Read: https://taxfyle.com/blog/independent-contractor-taxes
Now You Know How to File Taxes as an Independent Contractor
If you follow these tips on how to file taxes as an independent contractor, tax season can be a breeze.
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