A company hires an independent contractor or freelancer to provide specific services. Services may be given one-time only, sporadically over time, or contractors may enter into a contract that lasts several months.

The IRS considers independent contractors to be self-employed. The IRS has created rules under the common law to help determine whether an individual is an employee or an independent contractor.

These rules break down into three categories:

• Behavioral
• Financial
• Type of relationship

Tax Forms You'll Need

As a business or company, you must be prepared to give the appropriate tax forms to those you employ and the independent contractors you work with. Employees will receive a W-2. An independent contractor will receive a 1099-MISC.

If you are a small business owner who works with independent contractors, once you send out their 1099-MISC forms, you can move on to your other responsibilities.

For independent contractors, there is still more work to do. Along with a personal tax return, an independent contractor must file a Schedule C form. This form provides information regarding the profits and losses from the business that year. The amount of income tax owed will be based on the information provided on this form. Here is a short list of all the forms independent contractors need to file:

• Schedule C: used to report self-employment income and deductions
• Schedule SE: used to pay self-employment tax
• Personal income tax Form 1040

Deductions You Qualify For

As a self-employed person, you are essentially running your own small business. Although this means you are responsible for filing your taxes, you are also qualified to take business-related deductions. These are costs that cut into your profit. It is essential to include these because your income tax will be more accurate when everything has been accounted for. So remember to deduct costs to your small business when filing taxes as an independent contractor.

Deductions may include:

• Health insurance
• Home office
• Mileage
• Half the cost of what you pay in self-employment tax

Businesses withhold a portion of the income from their employees and send it directly to the government to pay income tax. This is done throughout the year. As an independent contractor, you must follow the same schedule and send estimated income tax payments to the government quarterly. These tax payments are sent to the federal government and the state if your state requires income tax. The dates for the estimated income tax payments are as follows:

• Apr. 15: Earnings from January through March.
• Jun. 15: Earnings from April and May.
• Sept. 15: Earnings from June through August.
• Jan. 15: Earnings from September through December of the prior year.

Professional Help with Paramount in Glendale Heights

Filing taxes as an independent contractor can be a complex project. Tracking earnings and making the best estimations possible for the quarterly payments is crucial. Furthermore, deadlines and filing the correct and accurate paperwork are essential. The consequences for missing some of the finer details could mean facing penalties or fines.