Becoming an independent worker is the dream for many people. However, it does come with a few drawbacks, one of them being that you will have more complicated taxes. Here are some tips for keeping your personal finances in order come tax time.
Keep Track of Your 1099's
Every time you make more than $600 from a single employer, they are responsible for giving you a form 1099 that shows how much money they've paid you for the year. You can keep track of these by keeping a list of the 1099 forms you expect to receive. If you don't receive a 1099 form by the end of January, then you should follow up with each of your clients to help them arrange the paperwork. In the end, you will be responsible for reporting all of your income accurately, but the form 1099 will help you to have a valid documentation of your income.
Set Aside Money for Taxes
As a contractor, you don't have the safety net of getting your taxes taken out of every paycheck. You will also have a higher tax liability, because no one will be paying for part of your social security taxes. Be sure that you factor taxes into your budget so that you don't get a nasty surprise when tax time rolls around.
Write Off Your Expenses
As a small business owner, you have some opportunities to write off business expenses for your contracting work. Be sure to take advantage of credits for your home office, any equipment that you use, as well as business development and education that's relevant to your business. Using these deductions can significantly cut down your tax liabilities.
Use Tax Services
Keeping track of the various deductions and tax liabilities can be time consuming for a contractor. When you are running your own business, every hour that you spend on your taxes is coming out of your own productivity. If you would prefer to focus on your work of choice and leave the tax planning to someone else, you can hire a tax professional to arrange your taxes for you.
Tax services are great resources for asking tax-related questions, filing taxes, and personal financial planning. As a contractor, don't be afraid to get help from other professionals when you need it; tax services, like those offered by RJ. Garner CPA & Associates, PLC, are one of the areas where freelance workers can often benefit from sharing the labor of their business.