Working as an independent contractor has a number of benefits, such as flexibility and the ability to choose when and where you work. But as an independent contractor, taxes can become complicated if you are not organized and don't understand how taxes for independent contractors work. When you are an employee of a company it will withhold money from each paycheck to cover taxes that are owed on the wages earned, but an independent contractor is considered self-employed, so the burden of taking care of your taxes will fall squarely on your shoulders. If you are an independent contractor, use the following tax tips:
Get an EIN Number
An Employer I.D. number (EIN) establishes yourself as a business, and can be used to open up a business bank account so you can keep your business revenue separate from your personal finances. Separating your finances will make it much either to keep track of business income and expenses, which can help prevent confusion or errors when it is time to pay taxes. Separate accounts will also make it easier to provide records in the event that you are audited.
Keep Careful Records
Even if you are a sole proprietor working as an independent contractor, if you are bringing in money through your services or from selling something you are technically a small business in the eyes of the IRS. Even if you don't feel like you are making a ton of money, it is essential to keep careful track of your earnings each month as well as anything that can be considered a business expense. If you are not comfortable keeping your own books, consider paying for the services of an experienced bookkeeper to assist you.
Get Help From an Accountant
While many people choose to do their taxes themselves with online programs, filing taxes as an independent contractor can be confusing. If you want to maximize any possible deductions that you may qualify for and ensure that your tax burden is paid so you don't get into trouble with the IRS, it is highly recommended that you seek professional accounting services. Depending on your financial situation and how much income you are earning as an independent contractor, you may need to pay quarterly estimated taxes. An experienced accountant will be able to look at your books and financial records to find a long-term tax solution that will keep you in good standing and help you thrive as an independent contractor.
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