How To File My Taxes As An Independent Contractor – Sarah is an IRS Enrolled Agent and former Keeper employee. In 2022, he was recognized as a CPA Practice 20 Top Influencers in Accounting under 40. His work has been featured in Business Insider, Money Under 30, Best Life, GOBankingRates and Shopify. Sarah has worked in public accounting for nearly ten years and has extensive experience in strategic tax planning at the state and federal level. His clients come from a variety of industries, including oil and gas, real estate, wholesale and retail trade, finance and e-commerce, and he manages C, S corporations, partnerships, non-profits and estate tax exclusives. . . In her spare time, she is a devoted cat mother who enjoys walking, painting, and watering plants.
First, determine whether you must pay self-employment taxes on all income you earn. Then calculate your net income by subtracting business expenses from your total income and using it to estimate your 15.3% self-employment tax rate. Finally, make sure you file a quarterly tax return if you plan to owe more than $1,000 and file the required forms, such as Form 1040, Schedule C, and Schedule SE.
How To File My Taxes As An Independent Contractor
Don’t buy it, let’s try the theory. Smile as big as you can for the next 10 minutes as I tell you how to transfer your hard-earned money to the IRS in seven easy steps.
How To File Self-employment Taxes, Step By Step: Your Guide
That’s true. Today we will smile through the pain as we learn how independent workers, conference workers, and independent contractors must calculate, pay, and tax their work. Are you ready? Let’s go
This is the finish line. The self-employment tax applies to all “earned income” in the form of money received in exchange for goods or services. This is true whether it is your main source of income or not.
For example, let’s say you work a standard 9-5 job, but sell your handmade jewelry on Etsy for a small extra fee. Your sales are self-employed.
Please take a moment to make sure we understand the self-employment tax. If you’re self-employed, you pay FICA, which includes Social Security and Medicare taxes. They are automatically deducted from employees’ W-2 paychecks.
Independent Contractors Versus Employees: What’s The Difference?
Employers receive special treatment for paying a huge tax of 15.3%. Sorry, this has been added
To learn more, including why this rate is high, check out our guide to self-employment taxes. Meanwhile, how to maintain that smile?
This is the starting point of all taxes. You need to know how much you earn before anything else matters. Unless you have a good record to rely on, the key will be the tax form you receive at the end of the year.
If you earn more than $600 from a single customer or company, they will likely send you a 1099-NEC by January 31st. You may also receive a 1099-K code that reflects a payment you received through a third-party payment process such as PayPal or Stripe.
How To Fill Out A 1099 Form
You can use these reports to recreate your income for the year. I also recommend checking your bank statement for any income that may be missing or fall below the reporting level of $600. (Just because a client doesn’t report it doesn’t mean it’s not taxable.
Ideally, you use Keeper to track your business expenses throughout the year. Otherwise, shame on you.
Joke. We’re not judging here (unless you’re a stranger adding ranch dressing to watermelon).
Since you already have your account statement open, continue to check your business-related expenses while you’re at it. And don’t forget to check your credit card purchases too.
Employee Versus Independent Contractor
If you’re unsure whether something is considered a deduction, visit Keeper’s free resources page. Or, to make things easier, download the app and link your account so we can handle the reconstruction (and taxes) for you. Some common business expenses include:
If you have a good idea of your annual business expenses, you can subtract them from your total income to determine how much tax you’ll actually have to pay.
Are you doing this at the last minute? Don’t feel too bad. It’s not uncommon for an independent person to stop thinking about accounting and taxes until the end of the year, so you’re in good company.
Now you just have to think about how much to pay. If this is your first year working alone, be prepared for a higher tax rate due to the 15.3% self-employment tax.
Do You Need A New W9 Each Year? Here’s The Answer
Unfortunately, paying self-employment taxes isn’t the only thing that makes tax season difficult for freelancers. The good thing about the W-2 is that there are fewer surprises when it comes time to pay.
Earnings and FICA taxes are automatically deducted by the employer and sent to the IRS upon receipt. On the other hand, self-employed people have a harder time filing their taxes automatically.
Remember all the work I did for you in steps 2 and 3? Now you can use it. To estimate SE tax you need a search.
For example, let’s say you earn $10,000 in gross income and have $5,000 in business expenses. Your net income will be $5000. Taxpayer SE over $5,000 is not the entire $10,000. So your SE tax would be $765 ($5,000 x 15.3%).
Tax Filing Deadline Dates 2024
If you want to use shortcuts here, Keeper offers a free 1099 tax calculator that can do this calculation for you.
Until April 15. They are paid upon receipt of income. This is why employers must pay payroll taxes throughout the year.
Freelancers and independent contractors, of course, do not have an employer to do this for them. Thus, most are required to pay taxes quarterly in the form of “estimated taxes.” These payments are made before the 15th working day of the month.
Anyone who owes the IRS more than $1,000 is required to make quarterly payments or face a lower penalty.
16 Tax Deductions For Independent Contractors [2024]
Do you think it could be you? Use our quarterly tax calculator to see how much you owe in your next pay period (and whether you owe it before).
Only taxpayers with W-2 income, if their income for the year is less than the standard deduction ($12,400 in 2021), do not file a tax return at all.
If you file your taxes yourself, you will have to deal with annual return forms:
This should be familiar to most of you. The 1040 is the form that individual taxpayers use to report all of their taxable income and calculate taxes.
Webtaxonline On X: “how Do I Claim Contract Work On My Taxes? How Much Gst Do I Pay As A Contractor? Can Independent Contractors Claim Tax Expenses? To Find Out More In
This form is intended for individual entrepreneurs or self-employed people. You’ll use it to report your business’s overall income and expenses.
The net income reported on Line 31 of Schedule C is sent to Schedule 1040 and SE to calculate the taxes you owe.
When you fill out Schedule C, you will find that it lists several types of business expenses. Most of them are easy to understand, but some can be confusing.
Let’s briefly look at more complex categories. And if you want a step-by-step in-depth study, check out our detailed guide to filling out Schedule C.
Independent Contractor: Definition, How Taxes Work, And Example
This category is used to report the cost of inventory. It includes both physical and virtual products. For example, if you sell online advertising, you can enter the cost of purchasing digital advertising space here.
Be sure to fill out the price section for the item being sold in the table on page 2 if you plan to use this line.
If you claim to have paid for the motorcycle, you will need to complete Part IV of the schedule on page 2.
Tip: You may also need to file Form 4562 if you plan to depreciate your car. More details on this below. If you do not answer the questions on page 2, your vehicle may not be registered.
Pros And Cons Of Hiring Independent Contractors
To use this category, you must fill out Form 4562, reporting all of your fixed assets (such as plant, equipment, and machinery) and their depreciation bases and methods.
If you plan to take an office debit at home instead of claiming a simple amount, you must fill out Form 8829 and attach it to your return.
If it all seems like too much to keep track of, Keeper can fill out these forms and categorize your expenses for you. Why add the headache of filing a tax return to the pain of self-employed tax debt?
Schedule SE is used to calculate self-employment taxes. You’ll fill it out with your Schedule C and tie it to your 1040 when you file.
Making The Leap: Transitioning From Employee To Independent Contractor
Alternatively, you can upload your data to Keeper and we will send it to you.
Keeper’s mission is to help people navigate tax complexities. We provide this information for educational purposes and do not provide legal, tax or accounting advice. If you need a tax specialist
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