The manual labor of entering data into Excel is likely to bring mistakes. Many new small business owners will start by entering all of their bookkeeping on an Excel spreadsheet. Accounting software allows you to invoice your clients and keep up on unpaid invoices.Ībove all else, the most significant benefit of utilizing accounting software is creating accuracy and order within your business. Accounting software will make it easier to do so with the ease of invoicing. Getting paid for your work is vital for any contractor. The most considerable benefits of accounting software for contractors are helping you get paid, giving you data for accurate financial records, help you with your tax estimates, and so that you are not overwhelmed if an audit comes your way. Let’s face it unless you are a bookkeeper or accountant working as an independent contractor, and these skills are likely not your strong suit.Īccounting software can help even the most accounting inept people to become capable organizers of their books! This might all sound intimidating, but with the right help, you will be handling your taxes and bookkeeping like you know what you are doing! Contractors are held reliable for their tax payments and do not rely on businesses to withhold income tax for them. However, when a company hires an independent contractor, it is different. This goes for all employees of a company. Each year, all employee taxable income is proven on a W-2 form and filed to the IRS. A percentage of each check is withheld to fund unemployment, social security, Medicare, and tax liability. The business they work for will withhold and report a portion of the employee’s wages. People who work routine 8-5 jobs for a company are classified as an employee. However, you may not have realized how important it is to make sure you keep up on bookkeeping and accounting as an independent contractor. You likely became an independent contractor to get away from the typical workday or have a particular skill that businesses desire. As a business, you will need to pay taxes and keep up with your bookkeeping as well. In order to claim business expenses, each expense must be considered ordinary and necessary, meaning it is common to the profession and develops or maintains your business.Ĭurrent expenses are those which benefit your business for less than a year.Īny expense not related to personal uses and can be directly related to the business may be deductible.Įxpenses must be a reasonable amount to be deducted and shouldn’t be inflated.As an independent contractor, the law classifies you as a business. Business, professional and education licenses, and fees.Transportation and travel - both locally and away from your home.Net profit relates to the amount you were paid for goods and services, after you’ve taken all your eligible business deductions. When filing your return, ensure you have appropriate documentation to back up all your income and expenses Any net earnings greater than $400 require the filing of a Schedule SE to calculate self-employment tax. To report your income to the IRS, you’ll use a Schedule C, or a simpler version of the Schedule C-EZ. These taxes cover 15.3% of your net profit toward Social Security and Medicare, along with your share of income taxes. Throughout the year, you’ll be expected to pay self-employment taxes, usually in quarterly installments. If at first glance the IRS doesn’t approve your deductions, there’s a chance you may get audited.Ĭopies of whatever Form 1099-MISC you receive are also sent to the IRS by the client who paid you. Independent contractors have to be diligent in their record keeping – ensuring business expenses and personal expenses are always kept separate. You may be able to deduct some relevant costs of developing, maintaining and growing your business. However, because the payer doesn’t provide these things, you’ll be required to handle it yourself. They aren’t required to include benefits, Social Security contributions, or income tax withholdings, which means you may make more money than a salaried employee. In some cases, you may be considered a “nonemployee” to the payer. The IRS considers anyone who receives a 1099-MISC to be self-employed, whether as a freelance writer or an Uber driver. This form documents your earning from a specific client, as opposed to a standard employee’s W-2. You are an independent contractor in the eyes of the IRS if you receive a Form 1099-MISC. Freelancers, contractors or other consultants, even if they work part-time on the side, can often have a more complex tax situation than the standard employee.
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