Taxes can be confusing — especially when you're an independent contractor. When you work for yourself, rather than a company, the way you do taxes is different. And if you previously only filed taxes as a W-2 employee, it might feel like a whole new ball game. So if you have questions about how taxes work for the self-employed, you're definitely not alone.
While you should reach out to a tax expert or financial advisor for questions specific to your circumstances, we've gathered some resources to make it easier for you to do research. Learn about several federal tax questions for self-employed individuals and general responses below. For those in need of temp staffing solutions, consider exploring options in Spokane Valley.
Independent contractors may need to fill out different forms depending on their circumstances, but some key ones include:
Related: What Pros need to know about Instawork & taxes
Independent contractors who earn more than $400 through 1099 work are subject to the federal self-employment tax of 15.2% (for the 2021 tax year) on their net earnings, which you can calculate using Schedule C.
Keep in mind, though, that the self-employment tax isn't necessarily the only tax you'll have to pay. You may also pay income, state, and local taxes, among others.
You don't have to work for a company in order to start or contribute to a retirement account. There are several different options available for self-employed people, such as:
Most people only have to submit their taxes once a year (you can find the deadline here). But others need to pay taxes more often, in the form of estimated quarterly taxes. This includes people who make $1,000 or more per year through independent contracting work.
With estimated quarterly taxes, you pay of your estimated overall taxes every three months — see here for specific due dates.
The first step is figuring out how much your quarterly payments should be. A few options include an online quarterly tax calculator, the Estimated Tax Worksheet in the IRS's 1040-ES guide, or tax software for people who are self-employed.
Once you've calculated your estimated quarterly payments, you can pay them through mail, online, or on the IRS's app. There are also some tax programs like QuickBooks Self-Employed that both calculate your estimated taxes and allow you to send payments through their platform.
If you were required to pay quarterly taxes throughout the year but didn't, you'll still owe that money in your annual filing, and you may get hit with a penalty as well. It's important to make your estimated tax payments on time and as accurately as possible. Not only does it help you avoid fines — it also prevents you from having to make one big payment at the end of the year.
There are some business-related goods and services that the IRS allows you to claim as a deduction — in other words, you can subtract the cost of those expenses
