Filing your taxes as an independent contractor is very different from filing taxes as an employee. As a self-employed individual, generally you are required to file an annual return and pay estimated tax quarterly, which means each business quarter of the year.
When you work for yourself, there are no deductions from your paycheck for income taxes, social security or Medicare, as would be the case if you were working as an employee. As an independent contractor or small business owner, you are held responsible for paying federal and state income tax, social security and Medicare; this combined tax is called self-employment tax for independent contractors.
Organize and Prepare
As an independent contractor, the most important aspect is to organize and prepare. A few things you should consider and prepare for are:
- Seeking tax preparation assistance or finding a reliable tax preparer or accountant, especially if it’s your first time filing. To find support in finding a tax preparer visit the Taxpayer Advocate Service.
- Be prepared to pay both federal and state, and in some cases local or city, taxes
- Keep track of your income (both as an employee and an IC)
- You will receive a W-2 form as an employee and a 1099 form for work done as an independent contractor.
- You will only receive a 1099 if you made $600 or more for a particular client.
- You will need to report income from small jobs separately
- Keep track of your business expenses
- It is recommended that you keep receipts of all of your expenses for at least 6 years.
- Consider using an App to keep track of receipts such as Quickbooks or Foreceipt.
- Pay quarterly estimated taxes if you expect to pay more than $1,000 in taxes annually.
Keep up with changes
The IRS makes updates, corrections, clarifications, and changes to tax filing requirements, forms, and procedures throughout the year so it is important to stay up to date and aware of any changes that might affect you before filing. For updated information about changes, visit the irs.gov website.