How Do I File My Taxes If I Am An Independent Contractor?
Filing Taxes As An Independent Contractor
An independent contractor has some special tax circumstances that may need to be taken into consideration when filing their taxes. For the most part, an independent contractor and a person employed by a corporation differ in that the independent contractor is 100% responsible for the payment of all of their taxes. If they have a very high income level, estimated taxes should be paid throughout the year to avoid penalties for underpayment. The estimated payments can be calculated based on previous year’s income. These taxes are paid quarterly.
Independent contractors pay what is known as a self employment tax instead of a social security tax. In reality, self employment tax includes both the individual’s portion of social security taxes as well as the corporate portion. Independent contractors will normally use business expenses to reduce their income. Because of this, independent contractors must maintain very accurate records of their expenses in order to claim them.
Filing The Return
An independent contractor tax return can be filed along with personal income tax returns and normally are filed this way. Because an independent contractor is not a corporation or a partnership, there is no additional returns to be filed. It is best to plan for estimated tax payments throughout the year to avoid the penalties associated with not doing so as well as being subjected to alternate minimum taxes.
Independent Contractor Status
A person will qualify as an independent contractor any time they receive a 1099 MISC form and not a W2 form reporting their wages. Jobs that usually are classified as independent contractors include daycare and any type of home business as well as some others such as snow removal and lawn care. This is not an exhaustive list by any means. The deciding factor will be whether taxes were taken out of the earnings or not.