What Independent Contractors Need To Know About Taxes

California has a large number of independent contractors, many of whom don’t even know their work falls into the category until they receive a surprise 1099-MISC form at the end of their first year of employment. Knowing if you are one ahead of time, and what to do if so, will put you in a better position when you file.

Who Is An Independent Contractor?

Independent contractors are defined by their freedom. Your employer gives you tasks to perform, but doesn’t provide substantial training or specific instruction detailing how they must be completed. There are other qualifications as well, but these are the most basic. If you’re uncertain, just ask your employer: they’ll be able to tell you how you’re being considered so you can act accordingly.

Being able to classify you as an independent contractor is a benefit for the employer. It reduces their administrative costs because the burden for most of the tax-related issues falls to you rather than to them. They simply provide you with one form at the end of the year that lists how much they paid you. You are responsible for everything else.

You Have To File Quarterly Estimates

As an independent contractor, you’re considered self-employed. That means you’re responsible for filing quarterly estimated taxes. Many people forget that taxes are actually paid throughout the year; the balance between what you paid and what you owe is simply reconciled every April. If you don’t have a company doing the withholding for you – and as an independent contractor, you don’t – you’ll need to take care of it on your own. Liberty Tax can help you organize and submit the payments. Your Liberty Tax franchise is open year round so you’ll never be on your own.

You Need To Keep Good Records

As a self-employed individual, you’re also a business owner, which means you’re eligible for special deductions and credits. But in order to claim them, you need to make sure you have the records to support them. If you’re not sure what to keep track of, err on the side of caution and note down everything. You can also stop by your local Liberty Tax franchise and talk about the kind of credits and deductions you might receive. We at Liberty Tax recommend keeping track of the traditional financials necessary for any business along with any travel expenses and vehicle use.

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