Things To Consider Before Becoming an Independent Contractor
Many people find being an independent contractor to be a preferred method of doing business. One of the reasons people enjoy contract work is because they can set their own hours and work from home. Many people have a spouse who works full time and the couple finds it convenient to work from home. Contractors can also work in a location that is convenient to them. Independent contractors can earn a higher income than someone who works for someone else. An independent contractor can manage their own taxes and keep 100% of their income initially. This freedom is enjoyed by many people.
Financial Planning Is Crucial
The independent contractor has the freedom to hire their own employees and build a successful business. They are not restricted by someone else’s schedule and can choose to work as much as they want or as little as they want. They are not required to work certain hours and they have the freedom of choosing their own marketing methods. An independent contractor has the freedom to choose the clients they want to work for and the type of work they want to do. When a person decides to be an independent contractor they must realize that they will have to focus on several important financial decisions, such as:
- How to pay quarterly tax payments on their income.
- How to make business related deductions
- How to be an excellent accounting bookkeeper.
- How to keep track of your medical, dental and vision insurance.
- How to manage your insurance deductibles, co-payments, co-insurance and out-of-pocket maximums.
- How to manage your 401(k) plan and other retirement plans.
- How to manage your college savings accounts.
- How to manage your charitable donations.
- How to manage your investments.
- How to select the best life insurance policy for your needs.
In addition to managing all of these business finance related decisions, contractors also have to be prepared pay their own taxes. In other words, expect to owe at the end of each year and develop a plan to pay these tax liabilities before the tax filing deadline to avoid large sums.