How to get independent contractor taxes right (and avoid penalties)
How to pay independent contractor taxes
Now that you understand a bit more about how independent contractor taxes work, let’s get down to the tactical stuff.
Here’s exactly how to pay independent contractor taxes.
Step 1: Estimate your quarterly tax liability
First, you have to make an educated guess about how much money you’ll make (and therefore how much money you’ll owe) in any given quarter.
The IRS recommends using form 1040-ES but you can also use a quarterly tax calculator to estimate.
Remember, this number doesn’t have to be perfect. If you estimate too high or too low one quarter, just adjust for the next quarter.
Step 2: Make estimated quarterly tax payments
Once you’ve estimated your tax liability as an independent contractor, you have to actually make a quarterly tax payment.
You can send a check payment along with the aforementioned Form 1040-ES by mail, or (if you’re not ninety years old) you can pay online, by phone, or from your mobile device using the IRS2Go app.
Lots of tax services like Turbo Tax, HR Block, or your tax preparer also have quarterly options.
Step 3: Receive 1099-Misc forms from clients (if applicable)
Once the tax year comes to a close (Dec. 31 of any given year), any client you worked with over the previous year should send you a 1099-Misc Form to comply with IRS standards.
It’s your clients’ job to understand who gets a 1099 form, but if they’re not used to working with independent contractors, you may need to remind them.
Store these forms together in a safe place since you’ll need them to file your taxes.
Step 4: File Schedule-C at tax time
Finally, when the time comes to reconcile and report your tax status to the government, you’ll need to file a Schedule-C form—an appendage to the traditional 1040 forms used to report income.
A Schedule-C reports profit (or loss) from a sole-proprietorship or other personal business. As an independent contractor, this means you.
File your taxes as always—using a CPA or tax software—ensuring the extra information is accounted for.