Taxation for Independent Contractors – If you are working as a Search Engine Rater or Social Media evaluator for any company that doesn’t hire you directly, then you are known as an independent contractor. Regardless of whether you are an independent contractor, a freelancer, or consultant, you will be considered as ‘self-employed’. What this also means is that you are responsible for doing your own taxes. There can be some advantages to this and also some drawbacks.
Independent Contractor Tax Payer status
If you’ve been working for companies like Appen or Lionbridge, you know that you are basically your own boss. It’s very rare that you have to work with other people in these jobs or have much interaction at all. This can be a good thing or a bad thing. Keep in mind that the people you are working for are not your supervisors. You’re a contract worker which simply means that you provide your services in exchange for a set wage or price. You are largely in control of when, how, and where the work is done. And you can do the work when you want to as long as it gets done.
Another advantage of being an independent contractor is that you will make more money than if you were simply an employee. The reason for this is because companies are willing to pay more for an independent contractor because there aren’t any expensive long term commitments and the company doesn’t have to pay extra money for employment benefits.
The other great thing about being an independent contractor and working on your own is that you get to deduct more business expenses than a typical employee can claim. Think about everything you need to do your job, your computer, your desk, your chair, even the internet connection you are paying for can all be deducted as an expense at the end of the year. This basically means free office equipment.
One of the first things that you will want to do is come up with a plan to save enough money to pay your taxes at the end of the year. Working as a freelancer means that no one is doing your taxes. Your pay is given to you all in one lump sum with no taxes taken out. It is important to understand the basic tax laws. If you are not sure what to do, it is advised to talk to a tax specialist in order to help you save enough tax out of your paycheck.
cons of working as an independent contractor
One of the big things is that contractors aren’t eligible for any type of health or unemployment benefits because you are basically self-employed. So if you need health insurance, you would have to find something on your own that you could pay per month. Now you see why being an employee has its benefits when it comes to taking care of taxes and health insurance. You can still do all this stuff on your own, and it’s not impossible to get your own health insurance, but all that stuff takes time to keep track of.
It should be noted that if you are a US Yukon project rater then you’re a part time employee and your taxes are done for you. There still are other projects that are done on contract basis.
Knowing your taxes and how much you need to deduct is the most important part. As long as you keep enough money to cover taxes then you won’t have to pay anything. The biggest problem here is not withholding the right amount or not enough taxes. A single person in the USA will pay more taxes than a married person will. So it’s important to know exactly what you should be deducting from your pay.
For the USA you must take out self-employment taxes which are Social Security and Medicare contributions.
things that can help you with tax issue
There are some tax calculators online that can be used to accurately deduct the correct amount of money in taxes, including the self-employment taxes. That money should be kept in a separate bank account always so that if anything happens with the main bank account, that money is safe. So create a savings account and put that money into the account and don’t touch it until the end of the year when it’s time to do taxes. It is important to remember that it’s better to save too much than not enough.
When it comes time to do your taxes, it might be good to hire someone that can put together everything for you including your business deductions such as your office equipment or computer that you use to do your work on. There are some limits of course on what you can deduct. Find out exactly what you should have paid and make out a check and send it to the tax government in which you live. In the USA it’s the Internal Revenue Service.
As an independent contractor you won’t pay less or more taxes than if you were an employee. The only difference is that you have to do all the paperwork yourself. However, you are able to take more physical deductions than an employee would because you provide yourself with all the tools you need to do your job on your own.
In closing, it shouldn’t scare you to do your own taxes. It’s not any more difficult than doing your taxes as if you were an employee, and you might actually get the tools you need to do your job for free.