Managing Taxes as an Independent Contractor
One big reason why freelancers don’t want to get paid as a 1099 independent contractor is that they are responsible for paying their own taxes. When you get paid as an employee, you don’t have to do much paperwork. But if you are a 1099 independent contractor, you probably have to pay quarterly taxes. However, if you get paid as a 1099 independent contractor, you are may have expenses that affect how much taxes your owe.
Planning To Owe
Paying taxes as a self-employed independent contractor is a pain, but it’s something you’ll want to do correctly and on time every year. Each state has different requirements, but you’ll need to pay estimated taxes four times a year and pay taxes on your earnings at the end of the year. It’s a little more complicated than just paying taxes on your earnings, though. You’ll need to pay self-employment tax, which is a combination of your income tax and your Social Security tax. How much you pay in self-employment tax depends on how much you earn and how much you pay in income tax.
If you’re self-employed, you have to pay income tax, and your deductions and credits you’d get are different than as an employee. Contributing to an HAS, making retirement contributions, and using a home office can serve as deductions. If you have a lot of expenses, you might be able to deduct them too, as long as you can prove they’re related to your business. You also have to pay state and local income tax. In most states, your state income tax is a percentage of your federal income tax. If you live in a state with no income tax, you’ll pay taxes based on the state sales tax.
Many independent contractors fall into financial trouble by failing to plan for their tax bill at the end of the year. Since independent contractors do not pay any taxes out of their paycheck, these tax liability totals can add up as the year goes on. If you have experienced difficulty with your tax payments or are concerned about an owed tax debt, contact one of our Roseville bankruptcy attorneys. They can help you review your income and tax liabilities, and develop a plan to eliminate your debt.