Are you an independent contractor? If you are, there are some things you should know when it comes to filing your taxes. Whether you work for yourself or you provide services to other businesses, you’ll still have to comply with federal and state tax regulations. Here’s what you need to know.
Since you are an independent contractor, you don’t have an employer that will automatically take your state and federal income taxes out of your paycheck. This means that you are responsible for paying these funds directly to the government. However, if you live in any of the following states, you don’t have to worry about state income taxes.
Remember, you’ll still have to pay federal income taxes in these states.
Federal and state income tax percentages.
Your total self-employed annual income will be taxed at a rate of 15.3% in federal income taxes. This amount is split between social security which gets 12.4%, and medicare which gets the remaining 2.9%. Depending on where you live, you will also have to pay your state income tax. Different states have different rates. If you made less than $400, you aren't required to pay any taxes.
Pay your taxes quarterly.
It’s recommended that you pay your taxes on a quarterly basis. Of course, you still have the option of paying in a lump sum at the beginning of the next year, but doing so may lead to you getting a penalty for underpaying more than $1,000.
Working for other people or businesses.
If you worked or offered your services to another person or business in the previous year, they will send you a 1099 form for you to submit when filing your tax return. This is only applicable if you made $600 or more from that person or business.
The good news is that since you are self-employed, you’re most likely eligible to claim certain deductions. Depending on what you do, you can deduct the cost of any work-related expenses. For example, if you work from home, you’ll be able to deduct things like office supplies such as paper and pens. Likewise, if you work for a food delivery service such as UberEats or Doordash, you’ll be able to deduct vehicle expenses. There are two types of vehicle expenses that can be deducted. You can learn more about what you can deduct here.
Being self-employed can be extremely rewarding, but it can also be extremely confusing when it comes to filing and paying your taxes. R&G Brenner can help you figure out what you need to do and make sure you are getting the most out of your hard-earned money.