How to File Taxes as a Self-Employed Person

Many advantages that regular employees may not have been available to self-employed people. Typically, employers want their employees to work a set schedule under their direct supervision. Employees do not, however, have to worry about how to file their taxes as independent contractors.

You can set your schedule as a freelancer or independent contractor. You can decide on the projects you want to work on! The additional obligation of filing taxes as an independent contractor comes with this freedom, too. In addition to filing their annual forms, the majority of independent contractors will now need to pay quarterly anticipated taxes. Let’s go over the fundamentals of contract employment tax filing.

Taxes for Independent Contractors: Income Requirements

Don’t assume that because you make a small living from independent labor, you won’t need to file taxes. You should be informed of the income tax regulations whether you’re just getting started in business or working freelance on the side.

How much money must an independent contractor make to submit taxes? Independent contractors must file taxes, according to the IRS, if their net earnings exceed $400. You can determine your net earnings, also known as net income, by deducting your total revenue from the cost of your goods.

The standard income requirement for independent contractor taxes is this amount, however, there are also additional criteria that can be found in the instructions for Forms 1040 and 1040-SR. These may vary depending on your marital status, your income as a dependant, or whether you owe any additional taxes.

Two Taxes an Independent Contractor Must Pay

All of an independent contractor’s company costs, including taxes, are their responsibility. Taxes for 1099 contractors will differ differently from those for regular employees because these taxes are typically taken out of an employee’s paycheck.

The IRS lists the following taxes for self-employed people:

  • Self-employment tax (sometimes referred to as SE tax). This covers Medicare and Social Security taxes. 15.3% is the tax rate, of which 12.4% is used to pay for Social Security and 2.9% is used to pay for Medicare expenses. To compute this tax, use Form 1040 or 1040-SR.
  • Income tax. For both workers and independent contractors, this is a fundamental obligation. If you conducted business as a sole proprietorship, fill out a Schedule C form to disclose your profit or loss.

Recall Important Tax Deadlines

Independent contractors, as was already said, have a little more work to do when it comes to paying taxes. Independent contractors are required to make anticipated quarterly payments throughout the year, whereas employees file their income taxes in April. These are computed utilizing Form 1040-ES. Accuracy is best ensured by consulting an accountant.

The due dates for the first three tax quarters of 2022 have already passed, but it’s still important to be aware of them:

Q1: April 18, 2022

Q2: June 15, 2022

Q3: September 15, 2022

Q4: January 17, 2023

You can choose to submit your tax return before January 31, 2023, and pay the entire sum at that time to save time. The fourth quarter projected tax, which is due on January 17, won’t be required if you choose this course of action.

Seven Typical Tax Deductions for Independent Contractors

Working for yourself can occasionally be stressful, particularly when it comes to tax preparation. Most independent contractors and freelancers aren’t bookkeeping specialists, so they could miss out on a few standard tax deductions.

You are responsible for paying your business expenses, therefore don’t forget about these tax deductions for independent contractors:

1. Office at Home

Take into account all of the costs associated with a home office, including supplies and services like phone and internet. It might be difficult to figure out deductions for a home office, so it’s essential to speak with a business tax professional who can provide guidance.

2. Health Protection

Independent contractors may deduct healthcare insurance premiums. All because they are not eligible for employer-sponsored healthcare.

3. Contributions to Retirement

Your retirement payments, which are not being deducted from your pay by your company, may follow the same pattern as your health insurance premiums.

4. Promotion

You should keep note of any costs associated with your marketing or advertising responsibilities because they can be deductible from your taxes.

5. Qualified Services

You might need to hire a lawyer to analyze legal documents or an accountant to take care of your small business taxes at some point if you need to outsource some services. You can deduct these costs from your taxes, so keep track of them!

6. Memberships

If you subscribe to an industry-specific newspaper or pay dues to a professional association, you can certainly deduct these costs as business-related expenses.

7. Travel Independent

Contractors may need to travel for professional reasons, such as attending a trade event or meeting with a client. Keep track of these trip costs since you can write them off on your taxes. However, keep in mind that driving to and from a primary place of employment is not deductible. Travel costs between your main office and other work locations are deductible.

Submitting Quarterly Taxes as a Self-Employed Individual

As you can see, submitting taxes involves several steps. You must not only file an annual return but also pay anticipated taxes every quarter.

To help you stay on track with your quarterly taxes, follow these easy steps:

  • Make sure to account for any deductions you wish to claim when calculating your net profit or a net loss. Your Adjusted Gross Income is this (AGI). This should be done first because it will reveal if you have to pay income tax and self-employment tax.
  • Calculate your income tax using the formula below: Taxes are due based on AGI and tax rates. With this income tax bracket, you can determine your tax rate.
  • To determine your quarterly estimated tax, fill out Form 1040-ES if your net income is over $400.
  • Use the following calculation to get your taxable income for the SE tax: projected total income x 92.35% = taxable income. After that, you can multiply your taxable income by 15.3% to determine how much SE tax you must pay.
  • To determine your total projected taxes, add your income taxes and SE taxes. To calculate your projected quarterly tax payment, divide this amount by four.
  • Pay electronically through the IRS website or with a voucher and a check.

Consult a Seasoned CPA to Help You

The process of filing taxes as an independent contractor entails numerous calculations and stages, but it’s an essential one that makes sure you’re complying with IRS regulations. Contact a qualified CPA who knows how to keep your taxes structured and effective if the process feels daunting.

The Your Part Time Accountant staff has collaborated with numerous independent contractors. Maximizing tax savings is our forte. Start today with a free consultation to learn more about how we can simplify your independent contractor taxes while also providing ongoing support.