How do I avoid taxes as an independent contractor?
An independent contractor is someone who has a 1099 income or self-employed income. This allows you to take advantage of the same tax code that large corporations, like Fortune 100 companies take.
To file your taxes
you first are going to have to determine how you’ve set up the entity structure for your income. We have lots of videos and information on the best way to figure that out, you can follow the link to our YouTube Channel below. Ultimately, you want to choose the right choice between Sole proprietor, LLC, S Corporation, or C Corporation partner. As an independent contractor, you’re a business owner, and so you need one of those business structures. The structure you choose will tell you what you need to file. You may need to file a separate partnership tax return. You may need to file a separate S corporation tax return, or you may file a Schedule C form on your personal tax return, which is your 1040. If you’re doing this yourself, find a tax software that has the forms that you need in order to file for yourself.
Now as an independent contractor you’ll have your business income, but you’re also allowed to take deductions. You’re going to want to make sure you’ve gone through your statement, maybe you’ve done your own bookkeeping, but you basically have created a profit and loss. Where you have your taxable income, the income you’ve received, and then you have underneath it all the different expenses that you can write off against that income.
We also have lots of material out there
and content on what things you can write off. Feel free to also look at those. Then that leaves you with a net income, for however you’re filing the business. Again, that could be a Schedule C on your 1040 personal return. It could be a separate S corporation filing.It could be a separate partnership filing. You’re going to put that income and your expenses on that form or the separate filing. That information is reported on your personal return. For example, if I am filing an S corporation, that’s an 1120S tax. That will create a K1 for me. I use the K1 and put that information on my 1040 tax return.
I think in today’s day and age, it would be crazy for anybody to try to do this by printing off forms and filling them out by hand. Every single person I’ve ever known who’s tried to always gets audited because at a minimum they’ve mathematically messed something up and the IRS’s system is a computer that first checks things. It’s easy for it to spot a mathematical error. Then they get a letter and now they’ve opened their risk that they want a full fledged audit. At a minimum, if you’re going to do this yourself, at least use software. Now depending on what you want to do, there are companies out there that allow you to walk in and prepare your taxes. Please just keep in mind most of those companies, they’ve trained their people on how to use tax software, so you’re really just paying a premium for someone to do your return in a software.
We do have a tax packet that has strategies involved
if you would like more information on how do I avoid taxes as an independent contractor?
Follow the link below as John Briggs, Tax Genius, gives you the best tax advice for Independent contractors.
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