Working as an independent contractor is a great way to make a living without answering to a boss, but unfortunately it doesn’t absolve you of your responsibility to pay taxes. Everyone must pay their due, and that includes independent contractors like you. If you’re unsure how to go about filing your taxes as a contractor, or just want to maximize your benefits, read on to learn about the top tax tips for independent contractors everywhere.
Learn About the Filing Process
Independent contractors go through a different filing process from that of standard employees. Rather than incurring automatic tax deductions from your pay and receiving a W-2, as an independent contractor you are expected to make calculated tax payments on a quarterly basis throughout the year. You handle your own taxes, rather than relying on an employer to calculate pay deductions. It may seem like a lot of trouble, but learning this new filing process and sticking to a quarterly payment schedule makes sure that you won’t fall behind.
Keep Organized Records
Every tax payer should be concerned with keeping organized records, and you should be especially diligent with your record keeping as an independent contractor. Making accurate and reasonable payments on your taxes depends on your ability to keep records of your income and expenses. Buy yourself a filing cabinet and keep all relevant paperwork in an organized system that is easy to access. You don’t want to overpay or underpay on your taxes, and keeping good records will help you ensure that you pay what you owe and get back what you deserve.
Separate Business from Personal
Though you and your business may be practically inseparable, always remember that you are not your business. When it comes time to file your taxes, the task will be monumentally difficult if you haven’t taken steps to keep business and personal finances separate. Open dedicated bank accounts and credit lines for your business, and don’t use them for personal expenses. This is the best way to ensure that your tax returns don’t become overly confusing and convoluted.
Track Your Work Expenses
As an independent contractor, you are eligible for a number of tax benefits of which you may not be aware. Many work expenses are tax deductible, so keep track of what you spend for your business. If you work from a home office, invest in vehicles and equipment, or go traveling for your work, you may be able to claim these expenses as deductions when you file your taxes. Don’t miss out on deductions that you deserve.
Remember Self-Employment Taxes
Salaried employees incur deductions from their pay to contribute to things like social security and Medicare plans, but as an independent contractor you are responsible for making these payments yourself. Wall Street financiers and Murrieta tax accountants alike will warn you not to forget these taxes. A portion of your self-employment tax payment is deductible, so remember to make these payments and claim your deductions every time you file your taxes.