If you are an independent contractor, you file taxes as a self-employed person or company. You can operate as an S-corporation, sole proprietor, or a limited liability company. However, most independent contractors are sole proprietorships.
The Internal Revenue Service (IRS) dictates that you must file taxes like anyone else. The way you file depends on how you are organized. Tax attorneys at France Law Firm can help you with your business taxes every year, so you are sure to file them properly.
Ways to Report Self-Employment Income
While taxes are more complicated than filing personal taxes if you are an independent contractor, they are not as complicated as some corporations. You file business taxes with your personal taxes, but you have additional forms to complete, usually a Schedule C and Schedule SE. Instead of receiving a W-2 from employers, you receive a 1099-Misc from your clients.
Finally, most independent contractors must file their taxes on a quarterly basis. If you don’t – even if you don’t owe at the end of the year, the IRS could levy penalties on you. A business tax attorney ensures that you meet all deadlines throughout the year.
Since you are self-employed, you pay more in taxes. You don’t have anyone to share the burden of certain taxes, which means that you pay the full amount, unlike W-2 employees. You must include all income from the business on Schedule C. Once you complete Schedule C, you can complete Form 1040 and its accompanying documents.
Independent contractors have a benefit that individuals do not have: You can take business deductions. You also report those deductions on Schedule C. Some of the deductions an independent contractor can claim include:
- Health insurance.
- Home office.
- Home maintenance and repair if you have a home office.
- Mortgage interest.
Tax law changes frequently. Some years might see fewer deductions, and others might see more deductions. A business tax attorney at France Law Firm keeps up with the current tax code to ensure you claim all your deductions to minimize your tax liability.
What Taxes an Independent Contractor Pays
In addition to the regular taxes you pay on your 1040 for the income you received, you must also pay self-employment taxes. They take the place of Medicare and Social Security, which you pay as an employee. You pay the full amount of self-employment tax instead of sharing the equivalent with an employer.
According to the IRS, the current rate for self-employment tax is 15.3 percent. Of that, 12.4 percent is for Social Security, and 2.9 percent is for Medicare. You are allowed to deduct half of this tax.
Instead of a W-2 every year, you should receive a 1099-Misc from every client you have. You can use the form to compare your records to ensure that you are reporting the correct amount. However, if you earned less than $600 from any client, that client is not obligated to forward a 1099-Misc. However, you must still report that income. Business attorneys at France Law Firm will review your books, 1099-Misc forms, and other forms you might receive for different types of income to find an accurate picture of your income.
Once we have an accurate picture, we review your expenses, liabilities and deductions so that we can minimize your tax liability.
In addition to extra forms an independent contractor must complete, he or she must also pay quarterly taxes. These are estimated taxes. Florida does not have a state tax, so you don’t have to worry about that – only the quarterly federal tax filings.
Schedule SE helps determine how much you should pay each quarter. The quarters are Apr. 15 for Quarter 1 (Jan. through Mar.); Jun. 15 for Quarter 2 (Apr. through May); Sept. 15 for Quarter 3 (Jun. through Aug.); and Jan. 15 for Quarter 4 (Sept. through Dec.).
You must still file your personal income taxes on Apr. 15 of each year. You file Schedule C along with your personal 1040, as that is the form that shows how much you made and how much self-employment tax you need to pay.
Contact France Law Firm
If you are an independent contractor, contact France Law Firm for help with your taxes and to minimize your tax liability.