How to get independent contractor taxes right (and avoid penalties)

Now that you just perceive a bit extra about how impartial contractor taxes work, let’s get all the way down to the tactical stuff. 

Right here’s precisely the way to pay impartial contractor taxes.

Step 1: Estimate your quarterly tax legal responsibility

First, you must make an informed guess about how a lot cash you’ll make (and subsequently how a lot cash you’ll owe) in any given quarter.

The IRS recommends utilizing type 1040-ES however you too can use a quarterly tax calculator to estimate.

Keep in mind, this quantity doesn’t should be excellent. For those who estimate too excessive or too low one quarter, simply regulate for the following quarter.

Step 2: Make estimated quarterly tax funds

When you’ve estimated your tax legal responsibility as an impartial contractor, you must really make a quarterly tax cost.

You may ship a test cost together with the aforementioned Type 1040-ES by mail, or (in case you’re not ninety years outdated) you may pay on-line, by cellphone, or out of your cell system utilizing the IRS2Go app.

Plenty of tax providers like Turbo Tax, HR Block, or your tax preparer even have quarterly choices.

Step 3: Obtain 1099-Misc varieties from shoppers (if relevant)

As soon as the tax 12 months involves a detailed (Dec. 31 of any given 12 months), any consumer you labored with over the earlier 12 months ought to ship you a 1099-Misc Form to adjust to IRS requirements.

It’s your shoppers’ job to know who will get a 1099 type, but when they’re not used to working with impartial contractors, it’s possible you’ll have to remind them.

Retailer these varieties collectively in a secure place because you’ll want them to file your taxes.

Step 4: File Schedule-C at tax time  

Lastly, when the time involves reconcile and report your tax standing to the federal government, you’ll have to file a Schedule-C type—an appendage to the normal 1040 varieties used to report earnings. 

A Schedule-C reviews revenue (or loss) from a sole-proprietorship or different private enterprise. As an impartial contractor, this implies you.

File your taxes as all the time—utilizing a CPA or tax software program—making certain the additional info is accounted for.