16 Mar 2021
26 Jan, 2021
BY Guest Contributor
When you’re an independent worker, freelancer, or participating in the gig economy, you’ve probably come to dread tax season. Even if you’re doing everything right, you might still worry that you’ve missed something important and it’s going to come back to haunt you.
Want to have the easiest tax season ever? Follow these three steps and you can make it happen.
Keeping good records throughout the year will make things much simpler and faster when it’s time to file. Document each service you provide, the amount you are paid, and who paid you. This can make it much easier when you have to match things up with 1099 forms when it’s tax time.
You need to understand what records you need to keep to account for your income and verify any potential deductions. A good place to start is the IRS tax center for self-employed individuals.
If you’re an independent contractor, you’re required to file an annual return as well as pay estimated taxes quarterly. Since the government doesn’t know how much income you’re earning and collecting taxes along the way, it’s up to you to calculate the amount you owe and pay the taxes on time.
If you’re self-employed, such as a freelancer or gig worker that isn’t working directly for an employer, you are also responsible for paying self-employment tax (SE tax) in addition to income tax. SE tax is similar to Social Security and Medicare taxes that are withheld from employer paychecks.
You can estimate your tax liability for quarterly taxes using IRS Form 1040-ES and file before these deadlines:
– 1st Quarter 2021: Due April 15, 2021
– 2nd Quarter 2021: Due June 15, 2021
– 3rd Quarter 2021: Due September 15, 2021
– 4th Quarter 2021: Due January 15, 2022
You’ll also need to file your annual tax return by April 15, 2021, using Schedule C on Form 1040. If there’s a discrepancy between what you paid in estimated quarterly taxes and your final tax return, you’ll document it in your annual return or get a refund or pay additional taxes.
Don’t wait until the last minute to file your taxes. Make sure you set aside enough time to get them done correctly. If you’re mailing your forms, do it a few days ahead of time to ensure you hit the deadlines. If you’re filing online, give yourself time so if there’s a computer glitch, an internet outage, or a problem submitting the form, you’ve got time to deal with it.
H&R Block, TurboTax, and other tax software companies allow free tax filing services online. Take advantage of their offers or use a service like Credit Karma to save time.
There you have it! Prepare ahead of time and keep accurate records. Know your deadlines. Give yourself time to file. While you may still dread filing your taxes, things will go smoother and be much easier.
Many independent contractors choose this lifestyle because of the benefit of working for themselves. Others do it as side jobs or as temporary work while looking for full-time employment. Whatever your reason, it’s crucial that you keep accurate records to make it easy to file your tax return as an independent contractor each year.
About the Author: Paul Dughi has an MBA in Business Administration and has held executive management positions in the media industry for the past 30 years. He is an Emmy® Award winning Producer/Writer and has authored two books on Marketing, Management, and Sales. You can find him on WriterAccess.