Independent contractors has great advantages while earning a living which includes flexibility of setting their own schedule, the freedom of being their own boss and say yes or no to the work as per your interest and availability. Additionally, the age of the Internet makes this occupation easier and more in demand than ever. But the catch is many think that things tend to get more complicated for independent contractors when it comes to the tax season.
So here are 5 top tips for independent contractors that can make filing taxes as painless and stress-free as possible:
- Keep track of your paperwork
Come April 15 the deductions are a key way to trim your tax bill. So keep all the paperwork for your business related travel, gas mileage, office supplies and other business related deductions. The strategy is to keep a file on your desk for these receipts and one in your car and throw the receipts in as you get them. This will save your considerable time and effort. And you will be way ahead of the game in the unlikely event of an audit.
2. Hunt down your 1099’s
It is small but simple things ensure that each of your employers has sent you a 1099-Misc. If you are a part-time freelancer having just one or two gigs then it is easy for you to keep track of 1099’s. However, if you have gaggle of clients then have a quick checklist of who has and hasn’t sent you the proper form so that you don’t file without all the proper information. You should receive a 1099 by early February in any given year hence, any time past this is when you should start making calls. It is worth noting that clients only require to give you a 1099 if you have earned over $600 from them. The IRS will also get a copy of this form and you will want to ensure that when filing your return your income matches those 1099’s. A big red flag for the IRS is small business owners pocketing more cash than disclosing them.
3. Hire your family members
Another great way to save on your taxes is to hire your spouse or children to do a little work for you. If your spouse works for you then you can get a tax break on medical insurance while if you hire children to do things to help your business then you can in effect move a bit of your income to your children who may not be subject to the unemployment taxes and the social security tax.
A great way to protect some of your hard earned income is to open a self-employed retirement plan. You are allowed to put in up to 20% of your earnings into this retirement plan called a Simplified Employee Pension Plan or a Keogh plan. You can contribute maximum amount of $52,000 a year to this retirement planning which is a great way to save some money and protect some of your income.
5. Don’t do it yourself
Freelance and independent contractors are as independent as they come. But the tax hurdles for them are far more numerous than for the typical 9-to-5ers and the risk of potential penalties isn’t worth taking. This goes double for people who are new to the gig economy. It is one thing to try to swing it yourself with the tax accounting software once you have been on your own for a few years but if you have just started then don’t do it yourself. Instead seek advice from a professional tax accountant having experience with freelancers, small businesses and independent contractors.
Now that you know the 5 top tips for filing taxes as independent contractors, I hope that doing business on your own doesn’t mean wrestling with your taxes on your own. Get in touch with us to get help with the affordable tax services for keeping your hard-earned income and also keeping yourself on the right side of the IRS.
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Stephen Wallick started Stephen Wallick & Associates to provide tax and accounting services to Contractors, Real Estate Investors, and Realtors. Steve specializes in IRS Tax Resolution services and works with his clients to resolve cases under scrutiny by the IRS. As a tax professional and enrolled agent, Steve can save you money with IRS loopholes each year. With over 20 years going up against “The Man”, Steve is uniquely qualified to resolve even the toughest IRS cases.