What You Need to Know About Taxes as an Independent Contractor.
Every person involved in any economic activity has the responsibility of paying his or her taxes. A great proportion of workers are independent contractors, and this makes their tax situation quite different from permanent employees. The tax of different contractors is different from other employees in that it has different rates, different forms, different credits and deductions. If you are an independent contractor, here is what you need to know about your taxes.
Independent contractors have to report about their income to the IRS as they are their bosses and they have to represent themselves. The also have to pay for their social security and medical care deductions personally. Due to the difference in the taxation between independent contractors and other employees, they receive different tax forms. Some of these different tax forms the independent contractors have to fill include the Form-1040-ES, the 1099-MISC form, Schedule-SE, and the Schedule-C.
Independent contractors are eligible for different tax credits. Tax credits will see you retain some of the cash you are supposed to pay in form of taxes to the IRS. If you want to get the tax credit and the extra cash in your pocket, you can seek the service of a tax professional or remit your tax through a taxa software. There are three common tax credits that are common for independent contractors, and they include earned income tax credit, children and dependent care credit, and retirement savings contribution credit.
If you are an independent contractor, you are also eligible for a wide variety of deductions. Unlike tax credit, the deductions are geared towards reducing the amount of cash that is eligible for the actual taxation. There are many deductions which you can look out for and they include a home office deduction, contributions to retirement accounts, deductions to tuition and fees, expenses related to moving for jobs and also student loan interest paid.
Filing of taxes may pose a challenge to you during the tax filing season. This should not worry you as there are multiple options which you can go for and succeed in filing your returns. Seeking the services of a tax professional are the best option of having your returns file successfully and on time. Other than convenience, you also enjoy the tax professionals knowledge of tax laws and you can get the deductions and credit. The IRS tax filing tool can also come in handy if you want to file the returns personally. You can also fill out physical tax return forms and send them to the IRS through your mailbox. The last technique you can use to fill your returns is through software designed to file the returns.