Independent Contractor Taxes Guide 2021

Serina is an enroll agent who enjoys helping individuals and businesses optimize their tax and realize their goals. When she ‘s not thinking about tax she enjoys cooking, spend clock with friends and hiking in the Pacific Northwest. If you ’ re a DJ, Etsy Shop owner, mercenary calculator programmer or any of the many other freelance specialists this guide is for you. We will break down everything from what is a 1099 shape to tax deductions. By the time we ’ re done here, you ’ ll know everything you need to be confident in handling your freelancer contractor tax matters .

Who is an independent contractor?

The IRS defines an independent contractor as an individual whose payer has the right to control the direct leave of the shape, not what will be done and how it will be done.
This concept has made a way for an economy that allows matchless flexibility for both contractors and those who need things completed.

sometimes, the line between contractor and employee gets blurred. For example, does working from home and making your own agenda make you a contractile organ or employee ?
Two individuals could perform the same exact tax and one identify as a freelance virtual assistant while the other an employee with the job style of administrative adjunct. Who decides and how do you know which group you fall into ? Well, the IRS provides guidance. They give a few areas in which you evaluate the degrees of control in what you do and how you do it.


This category seeks to determine if there is a reasonable academic degree of independence and control condition of the work being done. A question to consider would be, does the payer or company operate what is being done and how the worker does the subcontract ?


The party responsible for payment, reimbursements or providing the basic equipment and supplies to perform the employment is besides a key deciding in worker classification.


If there is a written agreement in place and you ’ re eligible for benefits like vacation, insurance or pension plan it ’ s probably you ’ re an employee and not working a 1099 job. The IRS besides recommends taking into consideration how long the kinship is expected to last. For exercise, are you being hired for a erstwhile project or does the work you do a key aspect of the payer ’ second business ?
It is the payer ‘s province to properly classify workers. If after assessing the nature of your work, you still feel unsealed as to whether you are an employee or contractor, there ’ sulfur aid available. A tauten or worker may submit IRS Form SS-8 to request a decision on worker categorization. The tax code provides guidance in some areas but not always hard and fast rules. many situations will need to be evaluated on a case by casing footing. There are different independent contractor classification rules in California .

How does a 1099 contractor get paid?

independent contractors get paid in all the normal ways that are available to regular employees or businesses. Some may receive requital electronically on a project basis while others may compress their services on an hourly basis. There are besides more formal arrangements where there is an agreement in place for services to be provided on an ongoing basis for a menstruation of time.
Are you a podcast host or a loudspeaker ? Have you provided a service or delivered a course of study for a school district or private organization. If then, you may have been asked to complete a Form W-9. Form W-9 is used to collect your taxpayer information so that organizations can maintain accurate records and report any payments made to you in a given year on Form 1099.

many contractors don ’ t have a destine pay up day in the lapp means an employee would. In some cases they may be paid upon completion of a intersection or military service which for some autonomous contractors may be day by day.

Payday every day is a concept I can get behind !

The main takeaway when it comes to payment, a freelance has no tax of any kind withhold. We ’ ll explore precisely which autonomous contractile organ taxes you need to be on the lookout for later in the template. { write_off_block }

Your tax liability as an independent contractor

With a union tax code that ’ s literally thousands of pages and can be considered an evergreen document due to the frequency of its revisions, it ’ south comfortable to be uncertain of precisely what you need to do to comply with the police.
If you work on a platform, you may get some aid with sales tax if you sell things or local taxes. But broadly speaking you ’ ll want to get familiar with what you ’ re paying and to whom each tax class. { upsell_block }

How much tax do you pay when your’e self-employed?

Let ’ s startle with the part of independent contractile organ taxes collected by the IRS. These are known as federal taxes and to keep things childlike, there are two parts. There ’ s the assign that would have shown up on your W-2 pay stubs as FICA, which is collected for the function of making contributions to Social Security tax and Medicare taxes. For employees, they pay half and the employer pays half. however, if you get paid and don ’ t have any taxes withhold, the IRS classifies you as freelance. You must be mindful of how a lot tax you need to pay on 1099 income.
You see, you are responsible to pay the full sum of self-employment tax which is 15.3 %. fortunately, you ’ re allowed a tax discount for ½ of it when you file your tax fall.
adjacent, there ’ s the Federal income tax. The US follows a liberal tax system where people earning more money are responsible to pay a higher share of their income in taxes. The sum you pay will be based on which tax bracket you fall into after you subtract deductions from your total business income. For 2020, there are seven 1099 tax brackets and the tax rate range from 10 % to 37 %.
To promptly see how a lot you ’ ll owe at the end of the year, use Keeper ’ s self-employment income tax calculator .

State and local tax

As a freelance tax payer you ’ ll necessitate to account for your state and local taxes if they apply. several states don ’ t have a personal income tax. then if you reside in Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming, you have a act of an advantage and may be able to save more of your money. For the respite of us, there are absolve tools available to help in figuring out how much to set apart for 1099 income .

Gig economy taxes

The originate point for autonomous contractor taxes is income. Income refers to recompense in any form including cash, property, goods or virtual currentness. It ’ ll be up to you to keep track of how much you earn including the value of goods received throughout the year because you ’ re responsible to pay tax on it evening if you don ’ t receive any documents from the payer. As a freelance tax payer, you ’ re required to file a fall once your net earnings are $ 400 or more. The dim-witted equation for the entire sum you ’ ll have to pay taxes on is Income – Expenses (Deductions) = Net Profit or Loss. If you realize a net profit, that sum will be used to figure the tax you owe. Check out this freelance taxes for dummies guide for a simpleton dislocation of the taxes you ‘ll owe. { email_capture }

Tax deductions for independent contractors

What is a tax deduction ? Well, deductions reduce your taxable income and therefore, help you to keep more of your money. They are a boastful character of the taxable income equality. Deductions take into circumstance all that it costs you to run your business or provide a particular good or service.
Employees are not entitled to deduct business expenses, but as an independent contractor, you may. In fact, it ’ s encouraged ! here ’ s a list of common deductions that you may be eligible for as an independent contractor.
For each of the expense types, there are guidelines for how they should be accounted for and sometimes limits to what can be deducted. For example, car and hand truck expenses cover miles traveled or vehicle ( sulfur ) used for the determination of conducting business are deductible. If you use your cable car a lot for business, you might want to track your miles for taxes. You can opt to deduct actual expenses or take the standard mileage deduction which is adjusted annually.
Some deduction types, like depreciation, come with especial rules. Depreciation is an annual income tax deduction that allows you to recover the price of an asset over the meter you use it.
The IRS deem expenses to be deductible if they are both ordinary and necessary. ordinary refers to whether or not the expense is considered to be common given a particular line of bring. necessary in this sense doesn ’ deoxythymidine monophosphate think of required, it refers to an expense that is helpful and appropriate for your telephone line of work.
To illustrate how you could apply deductions in real animation let ’ s consider deductions a freelancer real estate agent, photographer, rideshare driver might each be able to take.

For a real estate agent

Felix is a actual estate agentive role. He must have certain licenses and training in rate to serve his clients. He could deduct those education classes and professional license fees. He can even write-off mileage if he must travel to meet clients. hera is a list of tax deductions for real estate contractors .

For a photographer

Natasha is a photographer. She takes headshots, class photos and is getting into event photography. Natasha may be entitled to a short ton of photography tax write offs. She can deduct locomotion to and from shoot locations, supplies, memberships to professional associations, Insurance on equipment and internet costs.

For rideshare drivers

Jeremy drives for Uber character time. His most obvious deductions for his Uber driver taxes would be his cell call and expenses related to his cable car. He can take the standard mileage deduction or use the method acting that uses actual costs. Jeremy can besides deduct amounts spent on supplies, car washes, wayside aid, and even food and drinks he buys for his passengers.
Keep in mind, personal, living or class expenses are never permissible as deductible clientele expenses.
When supplies or services are split between clientele consumption and personal use, you are entirely allowed to deduct the assign related to occupation activity. These rules would by and large apply the lapp for Postmates taxes.

Saving for retirement as an independent contractor

While there has been a billow of people joining the gig economy it ’ second placid a relatively newly phenomenon. Whether you got started temporarily to achieve a inadequate term goal or if you ’ re in it for the long draw, independent contractors retire excessively. With retirement in mind, there are tax deductions and benefits that come along with any contributions small business owners make. Getting setup with an IRA or 401K may require a short research on your end or working with your tax professional but it ’ mho well worth it.

Are you location-dependent?

Turns out that location matters a great deal when accounting for tax you ’ ll owe as an independent contractile organ !
How often do you see people jet setting and sharing their stories of working on a beach in the Caribbean or living half the year out of the and singing the praises of what virtual work has done for the lives of them and their families.
Or possibly, you ’ ra living your dream as a US citizen and living full-time in Asia. possibly you are abroad and you are earning an income as an freelancer programmer. such an arrangement could put you in the course of folks who qualify for the Foreign Earned Income Exclusion. It ’ s a far less common deduction, but this contribution of the tax code allows you to deduct $ 101,300 of your foreign earn income.
Because each taxpayer ’ s telephone line of employment is singular and their expenses will be particular to how they run their business it ‘s important to keep dependable records.

How to keep tax records as an independent contractor

A benefit of being an employee is that there is likely an HR and Payroll department that ensures all of your necessity tax is paid. however you, my friend, are your own boss ! Whether all of your income comes from mugwump abridge or barely a helping of it, it ’ ll be up to you to hold on to your paperwork.
One of the most frustrating aspects of being an independent contractor is having tax season peal around and feeling bewildered by all that must be done. You might feel submerge about possibly being hit with steep penalties and fees ( if you miss your tax deadline, it is your duty to sort that out with the IRS ).
The goal with this article is to make your tax situation and filing your 1099 taxes vitamin a seamless as possible while avoiding any tax penalty
Your records should include a compendious of all your business transactions and intelligibly indicate gross income and total expenses.
If you perform work on a chopine, they may provide you with an annual statement of activity which makes things quick and slowly. For freelancer contractors who perform ferment on multiple platforms or operate as a sole proprietorship, you may want to create an electronic mail inbox to hold anything that might be needed when it ’ s time to organize your tax information. Remember, tips and cash payments besides need to be accounted for.
Depending on the kind of cultivate you do, cope expenses may require a small more planning. I get it, it ’ second easily to forget about the ink cartridge you bought last hour, or the expedite transport you paid for to make certain an regulate arrived in clock.
Keeping all of your newspaper receipts for taxes is a myth. After all, a dependable issue of them are about useless because the ink will probably fade away. There are easier options like keeping credit card records for tax purposes.
When you ’ re on the run low and get a receipt for something that ’ randomness business-related, precisely snap a photograph of it. After you take a picture, just email it to yourself to be placed in that tax booklet we talked about earlier.
You can make your animation a lot easier by tracking your deductions with an automatic 1099 expense tracker app !

Estimated payments and calculating your taxes

Estimated payments are required for individuals, including sole proprietors only if you expect to owe $ 1000 or more when your fall is filed.
Schedule SE or form 1040-ES is used to figure and pay estimated tax. however, the easiest manner to file quarterly taxes is electronically. There are options through the IRS web site ( IRS Direct Pay ), EFTPS ( Electronic Federal Tax Payment System or IRS2go app. There are tools available to help you figure out precisely how much you should expect to pay like Keeper ’ randomness estimated tax payment calculator.
If you think you ’ ll owe tax and you besides have W-2 income you can choose to adjust your withholdings to cover the overage. If you earn all of your income as an independent contractile organ, do n’t expect a tax refund. You ‘ll be expected to owe and you may want to make quarterly estimated payments. quarterly tax payments allow you to pay as you go as the tax system was designed and can help to avoid a big unexpected tax bill when you file your return.
When are quarterly estimated tax payments due ? Well, quarterly tax payments are due on a agenda set by the IRS. Those dates are April 15, July 15, September 15 and January 15.

Filing your taxes as a contractor

At this point, you know which belittled occupation taxes you need to pay, you have to pay cheeseparing attention to your expenses and you need to get ready to file your tax recurrence with the IRS.

1. Collect your documents

As an mugwump contractor, you may receive a 1099-K or form 1099-MISC, you ’ ll want to make sure you have those on handwriting. You may besides have W-2 income, pastime or dividend statements and you ’ ll need all of that information ready for you in one invest once it ’ mho meter to prepare your taxes.

2. Organize your records 

The records you or your bookkeeper observe is a critical part of the serve. This is where all the receipts you ’ ve maintained throughout the year show up and count for something. You should want to take advantage of every permissible deduction and an accurate summary of what you spent will help you do that.

3. File your Tax Return

The final step in the process is to file your hark back. If you ’ ve gotten to this point, you know that a small planning when it comes to your autonomous contractor taxes goes a retentive way. The most effective way to submit your tax return is to e-file. If you happen to be filing an amended return for 2019, that can be e-filed as good. Any other amended returns will have to be sent by mail. Use Schedule C ( Form 1040 or 1040-SR ) to report income or loss from your business.

Getting set up for success

Running a commercial enterprise means you wear a lot of hats. Managing what you owe to the government can seem like a lot. here are a few tips to keep you on path with your taxes and to hopefully avoid an IRS audited account notice.
Put your system in seat and in the begin specially, and handling your tax obligations become simple.

1. Set up the right bank accounts 

Maintaining a branch bank account will help you keep occupation and personal expenses separate. This besides helps with the record keeping part of things. While you ’ re at the bank, set up a separate savings account besides. It ’ ll make it even easier to transfer your 25 to 30 cents for every dollar you earn to pay for taxes.

2. Use software and apps

Depending on your industry there are software and apps to help you track about anything. Whether it be mileage, sales and returns on trade sold, or even tax details. These tools help you stay organized and compliant so find what works for you. nf act, there are many great reviews for Keeper Tax that shows the joyride can help you do that.

3. Schedule a mid-year check-in

Conducting a mid-year check-in can help you get a common sense for how your business is doing and give you the data you need to make adjustments to your tax plan if needed. possibly you earned a lot more than you primitively estimated and need to set aside more for taxes. Reviewing your documents mid-year besides saves you the concern of having to go through an entire year of receipts a workweek before taxes are due and potentially miss deductions.

The freelancer tax preparation checklist 

here is our 1099 taxes checklist .

  • Maintain records of all income received (including cash, tips and value of goods received)
  • Keep track of business expenses (you can this free 1099 excel template or our app to automatically do it for you)
  • Plan to make estimated tax payments if necessary 
  • File annual tax return 
  • Pat yourself on the back for a job well done after completing all of your tax forms!

Always keep in take care that each taxpayer has a alone sic of circumstances. If you have questions or need advice about your specific situation during tax time reach out to your tax professional.

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Category : Finance

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