Tax Tips for Independent Contractors, Freelancers, and Consultants
Independent contractors, freelancers and consultants must file their taxes differently from someone who is part of a business’s payroll. Corporate employees have their taxes withheld via their paycheck, but the filing process for the self-employed person is quite a different process altogether. If you fall into the aforementioned category, you are not alone. Over 17 million American taxpayers fall into this classification.
Workers who serve the general public or do independent work for a business without being on their payroll, are usually termed as an “independent contractor.” This includes independent consultants and freelancers as well. If you fall into this category, the IRS classifies you as “self-employed.” If you are confused as to whether or not you are classified as self-employed, you can refer to Tax From SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding).
It may seem like an overwhelming task, but there are several things you can do to make the process less daunting. Of course, it pays to hire an Enrolled Agent, CPA or tax attorney. Taking proper steps to cover all bases can save you a lot of time and money in the long run, not to mention the possibility of audits, late fees and other penalties.
The following are some guidelines and hints for those who are self-employed this tax season, as well as a list of what forms you might need to file. If you need further assistance, please consult a licensed tax professional.
Helpful Tax Tips for Self-Employed Workers
1. Keep a Record of All Taxable Deductions
As an independent contractor, you are eligible for certain deductions that employees are not able to claim on their refund. However, in order for these expenses to be considered eligible for a deduction, you must have them documented. This includes gas and mileage for travel expenses, as well as other travel expenses such as bridge and road tolls, hotel costs and the like.
Also, if you have a home office, you can deduct expenses such as rent, utilities, real estate taxes, repairs, insurance and such. However, in order to qualify as a home office, you must use a portion of your home solely for your business.
You are also able to deduct any equipment you use to run your business such as a desktop computer or laptop, cellphone or business landline, printer, scanner, copier and more. You can deduct office supplies such as pens, paper and other stationery supplies.
If you pay a cleaning service to clean your office, you may deduct this expense as well. As a freelance, independent contractor or consultant, you are also able to deduct your health insurance.
If you have any doubts about what expenses can or cannot be deducted, be sure to consult an Enrolled Agent, tax attorney or CPA for professional advice.
2. Pay Your Quarterly Income Tax
As we stated above, as an independent contractor you should pay your estimated tax quarterly. Payments for estimated taxes are due in April, June and September and January of each year.
3. Start a Retirement Plan
As a self-employed worker, you are not contributing to a 401K, pension plan or other retirement fund. Also, you do not have an employer to match your contribution. The most popular retirement plan for the self-employed is a SEP or Simplified Employee Pension Plan. This plan allows you to save up to 25% of your net earnings in a retirement fund. This would be equivalent to your net profit on your Schedule C minus the deduction of one half of your estimated self-employment income tax.
What Tax Forms Should You File?
- Schedule C (Form 1040), Profit or Loss from Business
You would use this form if you operated as the sole proprietor and your expenses are over $5,000.
- Form 1099-MISC, Miscellaneous Income
If you worked as an independent consultant, contractor or freelancer, your income sources should send you this form if you are a non-employee and earned at least $600 in the tax year for which you were filing.
- Schedule SE (Form 1040), Self-Employment Tax
This form is used to report your Medicare and Social Security taxes.
- Form 1040-ES, Estimated Tax for Individuals
As a freelancer, independent consultant or contractor, you do not receive pay from an employer who withholds your taxes. Instead, you should make quarterly payments for your “estimated taxes” for your income taxes, Social Security and Medicare taxes.
Following these tips should help keep independent contractors in compliance with the IRS and help to reduce their chance of ending up on the IRS radar.
If you owe back taxes and would like us to review your tax case for FREE, contact Landmark Tax Group now for a free consultation.
Not only are we licensed Tax Relief Specialists, we are also former Senior IRS Agents that now serve the best interests of taxpayers like you – all we do is handle IRS Tax Relief matters, all day, every day. Speak to us for FREE at (949) 260-4770.
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