Start by calculating your taxable income after deductions. For simplicity, we will ignore certain tax credits and deductions, such as the Qualified Business Income deduction. And let’s assume you’re single, have no other income and claim the standard deduction. We’ll continue with the same scenario to estimate your federal income taxes. The good news is you get to write off half your self-employment taxes as an above-the-line deduction.Ĭalculating Your Income Taxes as an Independent Contractor Knowing you have to pay that much on top of your income taxes may be disheartening. Let’s say you expect to make $100,000 from your business in 2022. Here’s a simple example of how to calculate your self-employment tax. An employer can deduct that tax as a business expense. Why 92.35% instead of 100%? Because the other 7.65% is essentially a deduction representing the FICA tax your boss would pay if you were an employee and not self-employed. Calculating Self-Employment Taxes as an Independent Contractorįor 2022, you’ll pay a 15.3% self-employment tax on 92.35% of your net self-employment earnings, which are your earnings as an independent contractor minus ordinary and necessary business expenses. Plus, your estimated taxes need to cover both federal income taxes and self-employment taxes: the independent contractor’s version of Social Security and Medicare taxes. It’s not as simple as setting aside a specific percentage of your income-say 25% or 30%-because the amount you’ll ultimately owe depends on your tax bracket and the deductions and tax credits you may be eligible for. Estimating an Independent Contractor’s Federal Tax Liabilityįiguring out exactly how much you owe in taxes can be challenging-especially if you’re new to working as an independent contractor. If any of those dates falls on a weekend or holiday, the due date shifts to the next business day. 15 (for the last quarter of the prior year). But independent contractors must make estimated quarterly payments on their own-if they expect to owe taxes of $1,000 or more when they file their tax returns.Įstimated tax payments are due on April 15, June 15, Sept. Instead, the IRS requires you to estimate your tax liability and pay it throughout the year as you earn income.Įmployees satisfy this requirement by having their employers withhold taxes from their paychecks. In the U.S., federal income taxes operate on a pay-as-you-go system, meaning you generally can’t wait until the end of the year to calculate your taxes and pay what you owe. How to Pay Taxes as an Independent Contractor An independent contractor who structures their business as a corporation, a partnership or an LLC with more than one member may file a separate business tax return. Independent contractors generally file Schedule C, “Profit or Loss from Business” with their individual tax returns to report income and expenses to the IRS. How to File Taxes as an Independent Contractor They may or may not have written contracts spelling out the services they’re supposed to perform and their compensation for those services. Independent contractors aren’t employees of the people or businesses they provide services for. On LibertyTax's Website What Is an Independent Contractor?Īn independent contractor is a self-employed person or small business owner who performs services for another person or entity.
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