Everyone dreams of being their own boss and nowadays with the ease of technology, more and more people are choosing to be independent contractors. Working from home is everyone’s dream, except when you have to do your own taxes because that can be a real nightmare. This is why if you’re new to being an independent contractor, it’s important to be informed of what you need to do to avoid any penalties or even arrest if you don’t pay your taxes on time.
What are Estimated Taxes?
When you’re self-employed or an independent contractor, you have to pay your own taxes and you don’t have the option of waiting until April 15 like everyone else. Uncle Sam wants his money in four payments, which is actually easier than paying a lump sum once a year, plus you won’t get any penalties.
If you are an independent contractor, the IRS considers you a sole proprietor, meaning you own your own business. Based on your income, if you expect to owe at least $1,000 in federal taxes for the year, then you need to pay estimated taxes. There are many calculators online to help estimate your federal taxes, such as calcxml.com. As far as getting that final check to the IRS goes, here are the important calendar dates you should keep in mind when paying your estimated taxes:
|INCOME EARNED||TAXES DUE|
|January 1 through March 31||April 15|
|April 1 through May 31||June 15|
|June 1 through August 31||September 15|
|September 1 through December 31||January 15|
Save Money with Write-Offs & Tax Breaks
Everyone likes to save money, especially when it comes to paying taxes. There are many things that you could do in order to save money when you’re doing your taxes. It’s always wise to hire a tax professional, especially when you’re new to being an independent contractor. They can help maximize the most out of your taxes and you can learn a lot from them, such as what you can write off. That way in the future you can try doing your taxes on your own and know how to get tax breaks and how to maximize those during the year. Here are some interesting ways to save on your taxes for this year:
- Home office: Your home office can consist of simply a laptop, printer, and a cellphone somewhere inside your home. If you own these items, you can write off office supplies, utilities, rent, insurance, and even repairs to your “home office.”
- Mileage: Every time you travel from your home to say a coffee shop or a client’s office, you are able to write off the cost of driving, plus the cost of parking.
- Business trips: You can mix business with pleasure. If you’re traveling with your spouse to meet a client and plan to spend a couple of hours at the nearby beach, you can itemize 50% of the hotel bill and airplane tickets as a write off.
- Retirement plans: If you have retirement plans for employees, you may be eligible for a tax credit.
- Professional services: If you hire a lawyer for specific legal issues related to your business or even a tax professional to help you with your taxes, you can also itemize their fees.
There are many ways that you can save money and be prepared. Doing your own taxes is a difficult process, especially when you’re starting out. There are many things to think about throughout the year and it makes things easier come tax time if you make a list of things you can write off. It’s never too early to start thinking about your taxes, especially when you’re an independent contractor.