Independent contractors have different tax considerations than regular employees. First, you have to determine if the IRS (Internal Revenue Service) rule you as an independent contractor. If you work for a single client and under his premises, you might not be ruled as an independent contractor. Another factor to consider is how much profit you get from being an independent contractor. The IRS may consider your job as a hobby if you do not gain profit in 3 out of the 5 years that you are active. If you are sure that you are considered as an independent contractor, follow the steps below to figure out your taxes.
Here are the steps on how you can determine your taxes as an independent contractor:
- Prepare things you need. The things that you need are a paper, pencil, calculator, a computer with Internet access and the information that you will need for calculating your taxes. If you are just starting out, it is better to have a solid business plan so that you have a pretty good idea on how much money your business will bring in.
- Make a wise estimate. As an independent contractor, you do not have an idea of the exact amount that you will make for the coming year. The first thing you have to do is to make a wise estimate of how much money you will be making for an entire year. The amount does not have to be an exact number. It is better to target a higher income so that you are sure to have your tax rates covered. Just make sure that there is a high probability that you will reach your target income for each month of the year. Take note of the amount.
- Go to IRS website. Log on to the IRS website so that you can gauge the tax rates you have to pay. Go to the website irs.gov. Look for the range of your estimated income. You will see columns with different headings (Single, Married filing jointly, Married filing separately, Head of a household). Based on your information, you will know the tax rates that you need to pay.
- Planning. Take note of the amount on the chart from the IRS website and divide that amount by 12 months. The amount you get is the tax that you have to pay for each month.
- Paying taxes. When you work with a tax professional to determine your tax rate, bring important receipts, expense reports, exemptions and any other data that will be needed. The tax professional will be the one to add this up and deduct the amount from your income.
These are the simple steps that you have to follow in order for you to determine your taxes as an independent contractor. Remember to keep all the necessary files of your tax returns and receipts in case some problems regarding your tax arise in the future. Keep in mind to pay all your taxes on time to avoid being penalized by the IRS. To be sure of the due dates for taxes, check the IRS website. The taxes are usually paid on a quarterly basis, in the 15th of January, April, June and September.