|
Being an individual contractor has its own rewards, but one should not forget the additional work that is involved in self employment. You will be preparing your own invoices and payment processing forms. As an individual contractor, you will have to file taxes with the Internal Revenue Service much differently than as an individual.
An independent contractor differs from a regular employee. They do not participate in the same activities, programs, or systems which are generally run by the company. Independent contractors may or may not work for a company but if they do, they are not subject to the same rules or restrictions as ordinary employees.
If you are just starting a job and want to be an independent contractor for a company, the first thing you should do is to make sure that the client or the company will be listing you on the tax forms as an independent employee. You can also check with the IRS to see if you will be classified as an independent contractor. You will be taking the "20 Questions Test" where a number of factors will be checked. This will help determine how much control the client or company has over you and the work that you do.
As an independent contractor, you are still considered a business. You will likely fall under the category of sole proprietorship. If however, you work for a company as an independent employee and the company pays you as its contractor over $600 a year, you will be sent a 1099 form. You will not have your taxes withheld from your wages, instead you will have to file your income and pay a self-employment tax. If you are a freelancer on the other hand, you must file a 1040 Schedule C form when you are making more than $400 a year. Your tax rate can vary greatly depending on how much you earn.
Filing a Schedule C form consists of the following:
1) Find out if you are a sole proprietor.
2) Acquire a Schedule C from an Internal Revenue Service office.
3) Enter your name, Social Security Number, and address.
4) Describe your business and enter the business name. Enter your six-digit business code.
5) Check the box explaining your accounting method.
6) Check the box "yes" or "no" as to whether you "materially participated" in the business
7) Check the box if you started or purchased the business during the tax year
Tax codes are always changing and filing procedures vary greatly from state to state. Your main job is to investigate or ask the IRS for more information. For each filing year, always remember to check for new tax rules. Tax codes, rates, procedures, and even forms are always changing.
|
tweet this!