As an independent contractor or self-employed individual, taxes can feel overwhelming and stressful, especially if it is your first time going through the process or if you’ve avoided it in past years and now find yourself behind. However, paying taxes is an important part of doing business. If you are behind, it’s not too late to get back on track. A qualified professional can lead the way.
What are some mistakes to avoid?
- Not understanding the forms you need. For example, a 1040 is an individual income tax form that everyone fills out by the tax deadline. As a self-employed individual or contractor, you will also need 1099 forms from any client who paid you more than $600 in the last tax year. You should report your self-employment income whether you met the $600 benchmark or not.
- Not writing off your business expenses. There is quite a bit of leniency in what qualifies as a business expense for independent contractors. Part of your phone bill may qualify, for example. You may even be able to write off some square footage for office space. You might be able to write off mileage and maintenance on your car if you use it for business purposes. Keep track of your expenses and write off what you can.
- Writing off personal expenses. On the other hand, don’t get carried away with your write-offs. You can’t deduct things that are clearly personal, or you could open yourself up to the possibility of an audit.
- Not keeping accurate records. Come tax time, you will grateful for your accurate books. This means clean and clear records of expenses and income. Be responsible. Find software or a tool you find helpful.
- Not paying quarterly taxes. If you estimate you are going to owe more than $1,000 at tax time, you should be paying quarterly taxes. If you don’t, you could end up with a huge bill that feels insurmountable.
- Paying penalties for late or non-payments. By not arranging for quarterly payments or setting money aside, you may find you are unable to pay the bill when you do submit your taxes. You will incur fees if this is the case.
Being a contractor is challenging but handling the financials should be par for the course. Get the help you need before your financial situation becomes unmanageable.