Introduction
Being an independent contractor gives you the freedom to work on your own terms, but when it comes time to file taxes, things can get a little tricky. Unlike employees, independent contractors are responsible for paying their own taxes, including income and self-employment tax. Here’s your easy guide on how to handle your taxes as an independent contractor.
1. Understand Your Tax Obligations
As an independent contractor, you are considered self-employed. This means you’ll need to report all of your income and pay both the employer and employee portions of Social Security and Medicare taxes. Your primary tax form will be the Form 1040, which will include an additional Schedule C to report your business income and expenses.
2. Keep Track of All Your Income
It’s essential to track every dollar you make as an independent contractor. You’ll receive a 1099-MISC or 1099-NEC from each client who paid you $600 or more during the year. But don’t forget—if you worked with multiple clients, you’ll need to combine all of your income sources. Keeping track of this information is easier than ever with tools like Life Planner’s Expense Tracker, which helps you record and organize every income source and business transaction.
3. Deduct Business Expenses
As an independent contractor, you can deduct several business expenses to lower your taxable income. Some common deductions include:
- Office supplies and equipment
- Software and tools used for work
- Business-related travel and meals
- Home office space (if applicable)
Having these deductions tracked throughout the year is essential, and Life Planner's Budgeting Tools and Expense Tracker can help ensure you don’t miss any possible deductions.
4. Save for Taxes Throughout the Year
Independent contractors don’t have taxes withheld from their paychecks like employees. Instead, you need to set aside money for taxes yourself. A good rule of thumb is to set aside 25-30% of your income to cover federal, state, and self-employment taxes. You can use Life Planner’s Savings Goal Tracker to make sure you’re saving for taxes regularly, so you aren’t hit with a large tax bill at the end of the year.
5. Make Quarterly Estimated Tax Payments
Independent contractors are required to pay estimated taxes on a quarterly basis. These payments are due in April, June, September, and January. Life Planner’s Savings Goal Tracking feature will help you manage your tax savings and avoid underpayment penalties.
6. File Your Taxes
Once you have your income and expenses in order, it’s time to file your taxes. You can file online using tax software, hire a tax professional, or do it by hand. If your income is substantial or if you have a complicated business setup, it’s often wise to consult a professional to avoid mistakes. Make sure you file on time to avoid late fees and penalties!
Download Life Planner for Stress-Free Tax Filing
Tax time doesn’t have to be stressful. With Life Planner, you can track your income, expenses, savings, and even set reminders for quarterly payments. Life Planner’s Budgeting Tools, Expense Tracker, and Financial Reports make it easier than ever to keep your finances in check all year long, so when tax season rolls around, you're ready.
Get started today by downloading the Life Planner app:
Google Play or App Store.
Take control of your finances, track your taxes, and enjoy a smoother, stress-free tax season!