Being your own boss is the dream of many people across the world, and some make this dream a reality by striking out as independent contractors and/or running their own small businesses.
An independent contractor is a professional who does not work directly with one company, and in many cases, an independent contractor will work with numerous clients at once.
Although the term “contractor” can be used to define any professional who does contract work, it is often associated with professionals who work within the construction or repair industries.
(Potential) Downside to Working for Yourself
Although being an independent contractor has many benefits, such as setting your own hours and accepting the work you want to do, it can have some downsides if you aren’t careful.
The biggest of these downsides is taxes.
When you work for an employer, that employer typically handles all tax issues, such as withholding and reporting. When you work for yourself, however, you are responsible for these tasks.
This means that you will need to set aside the appropriate amount of money for your income bracket.
Special considerations for Independent Contractors
In addition, you’ll most likely need to pay your taxes on a quarterly basis instead of once a year.
Also, as is highlighted in the article, “Thought Leader Series: Tax Implications of Being an Independent Contractor,” you will receive tax form 1099-MISC from any client that you do $600 or more for in a calendar year. This form will contain information that you will use to file your taxes.
The article also discusses variations of this form for independent contractors who were paid indirectly or who were paid with a credit card.
Work with a Tax Professional
If you feel like you aren’t able to keep up with what needs to be paid or what your tax rate is, it would be a good idea to work with an accountant. Also, create a special place where you will store all of your tax records.
Contractors on the go often receive a lot of paperwork throughout the year, and it can be easy for important tax forms to get lost in the shuffle.
When it’s time to pay your estimated quarterly taxes, having all of your documents in one place will make the process go much more smoothly.
This also reduces the risk that you forget to include important documents as this could lead to a problem with the IRS.
About the Author: Andrew Rusnak is an author who writes on topics that include business consulting and accounting.