How To File Your Taxes As An Independent Contractor – ** Our trainers are not tax advisors and we do not provide specific tax advice on this blog. The purpose of this blog post is to provide an overview.
If you had a continuous source of income last year, you may need to file a tax return. Your refund is the government’s way of documenting and collecting the taxes you pay for all kinds of government services.
How To File Your Taxes As An Independent Contractor
Your employer deducts taxes from your paycheck throughout the year, but it may not be enough to cover your tax bill, in which case you owe Uncle Sam money. Your tax contribution may be higher throughout the year, so you can get a refund.
2020 Tax Dates & Deadlines Calendar [infographic]
But there are a few scenarios that can make your taxes even more complicated. For example, not everyone has a payroll role. Some people earn income as independent contractors or earn returns on investments. In addition, there are many ways to reduce your taxable income, thereby reducing the amount of tax you have to pay.
Because of all these nuances, taxes can be intimidating. Here are some tax filing essentials to ensure you’re prepared to file your taxes this season.
A tax return is used to determine a person’s tax liability by documenting a taxpayer’s income, expenses, and other relevant tax information during a calendar year. A tax return calculates whether you owe more tax than you paid during the year, or whether the government owes you a refund.
Federal tax returns are filed annually with the Internal Revenue Service (IRS). Depending on where you live, you may need to file a state tax return.
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Unless you file an extension on Form 4868, the deadline to file your federal tax return is April 15. The extension will push back your tax filing deadline to October 15th, but not when you actually owe your taxes. However, in order not to impose any penalty, these taxes should be calculated and paid within the standard period.
While this does not cover all tax terms, here are some common terms you should be familiar with.
You must choose whether you are a single taxpayer, head of household (unmarried persons paying at least 50% of the expenses of dependents), married separately, or married filing jointly. If you have recently lost a spouse and are supporting children, you may be eligible to register as a widow or widower.
A deduction is an expense or adjustment that reduces taxable income. For example, you can deduct your mortgage interest and fees into your 401k or health savings account (HSA).
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For most people under the new tax law, the standard deduction will be more beneficial than the itemized deduction. Thus, items that were previously deductible, such as charitable contributions, medical expenses, and mortgage interest, can be itemized. However, if the total amount of these deductions does not exceed the standard deduction, they will likely not be used and will not need to be submitted as supporting documents on the tax return. However, if an itemized deduction is taken instead of the standard deduction, the usual documentation will be required.
A tax credit reduces the amount of tax you pay in dollars. Some of the most common tax credits include the Earned Income Tax Credit (EITC), the Child and Dependent Care Credit, and the Lifetime Learning Credit.
The amount of the deduction and credit varies depending on the status of your tax return and whether you claim the standard deduction.
Tax forms and tax documents, such as receipts, will vary depending on your financial situation. Here’s a quick overview to give you a starting point.
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Regardless of how you pay your taxes, you should legally aim to minimize your tax liability and maximize your refund.
Previous Previous How to File Your Spouse as a Tax Dependent Next Next Coronavirus: How to Protect Yourself and Prevent the Spread Sarah is an IRS Enrolled Agent and former staff writer at Keeper. In 2022, he was selected as one of the top 20 influencers under 40 in the accounting profession. His work has been featured in Business Insider, Money Under 30, Best Life, GOBankingRates, and Shopify. Sarah has spent nearly a decade in public accounting and has extensive experience providing strategic tax planning at the state and federal levels. His clients come from a wide range of industries, including oil and gas, manufacturing, real estate, wholesale and retail, finance, and e-commerce, and he has represented C-Corps, S-Corps, partnerships, nonprofits, and sole proprietorships. . Prepared tax returns. . In her free time, she is a devoted cat mom and enjoys hiking, painting, and watering house plants.
First, determine whether you need to pay self-employment tax on all earned income. Then subtract the business expenses from the gross income to calculate the net income, and use that to calculate the employee tax rate of 15.3%. Finally, if you earn more than $1,000, pay your estimated taxes quarterly and file the required forms, including Form 1040, Schedule C, and Schedule SE.
Don’t buy? Let’s test my theory: Smile as hard as you can for the next 10 minutes while I show you how to get your hard-earned money back to the IRS in 7 easy steps.
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That’s right! Today, we can smile through the pain knowing that freelancers, workers, and independent contractors must calculate, pay, and file their own employment taxes. Are you ready? Let’s go!
Bottom line: Self-employment taxes apply to all “earned income,” which is money received in exchange for goods or services. This is true whether it is your primary source of income or not.
For example, let’s say you work a regular 9-5 job, but sell your handmade jewelry on Etsy for a little extra cash. Your sales are subject to self-employment tax!
Let’s take a moment to make sure you understand self-employment taxes. If you are self-employed, how do you pay FICA taxes, including Social Security and Medicare taxes? These W-2s are automatically withheld from employees’ paychecks.
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Employers have the exclusive right to pay the 15.3% tax themselves. Unfortunately added
To learn more, including why the individual rate is so high, see the self-employed tax guide. Meanwhile, how is the smile kept?
That’s the starting point for all taxes: you need to know how much you earned before anything applies. If you don’t have good records to rely on, the tax forms you receive each year will be important.
If you earned more than $600 from a client or work platform, they will send you a 1099-NEC by January 31st. You may also receive a 1099-K reflecting payments received through a third-party payment processor such as PayPal or Stripe.
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You can use these reports to reconstruct your annual income. I also recommend checking your bank statements for any income that is missing or below the $600 reporting threshold (Just because the client doesn’t report it doesn’t mean it’s not taxable!)
Ideally, you’ve used Keeper to track your business expenses throughout the year. If not, shame on you.
Just kidding! No judging here (unless you’re one of those devils who puts ranch dressing on watermelon).
You already have your bank statements open, so look for business-related expenses. And don’t forget to check your credit card purchases!
If You Don’t Get Form 1099, Is It Taxable, Will Irs Know? (hint: ‘if A Tree Falls In The Forest…’)
If you’re not sure if something counts as writing, check out Keeper’s Free Resources page! Or to make things even easier, download the app and link your account so we can do the checking (and tax filing!) for you. Some common business expenses include:
Once you have a good idea of your annual business expenses, you can deduct them from your gross income and determine how much you will be taxed.
Do it at the last minute? Don’t worry: it’s not unusual for freelancers to put off thinking about their records and taxes until the end of the year, so you’re in good company.
Now you need to understand how much you will pay. If this is your first year, be prepared to pay higher taxes than usual thanks to the 15.3% employee tax rate.
Form 1099: Reporting Non-employment Income
Unfortunately, paying self-employment taxes isn’t the only thing that makes tax season difficult for the self-employed. One of the benefits of W-2 work is that there are fewer surprises when it comes time to pay.
Income taxes and FICA are automatically withheld by the employer and remitted to the IRS when due. On the other hand, self-employed entrepreneurs find it difficult to automate their tax calculations.
Remember what I did in steps 2 and 3? Now you want to use it!
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