Independent Contractor Taxes
Independent contractor taxes are calculated using Form 1099-Misc. Are you an independent contractor? If yes, then you are considered to be self-employed. Not sure? Typically an independent contractor:
- does not receive employee benefits such as health insurance or retirement benefits,
- has a more flexible work schedule or location, and is
- paid when the service is completed.
The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to self-employment tax.
Because you are not an employee of the organization with which you work you should receive an IRS Form 1099. An independent contractor is responsible for withholding and paying his own taxes. Most self-employed individuals are required to make quarterly installments against their projected tax liabilities for the year.
With proper planning, a 1099 contractor can use business tax deductions against his self-employment income. He can deduct ordinary and necessary business expenses (cell phone, mileage, internet etc.) from his gross amount received. Just remember to keep records of all your expenses. If you incorporate your business you can probably take advantage of other tax benefits provided to corporations.