How to File Taxes as an Independent Contractor

Whether you started driving for Uber last year or you’ve run a graphic design business out of your basement for a decade, paying the right amount in self-employment taxes is crucial. Fortunately, filing taxes as a self-employed individual isn’t as tricky as it sounds, even after a year as rough as 2020. Below, we walk you through the tax-filing process.

Once you’ve gathered all your records, you can calculate your potential tax deductions. Many of these expenses can be deducted from your total taxable income, which lowers the amount of taxes you owe. Depending on the type of business you run, you should consider making deductions in the following categories:

• Home offices
• Educational materials and experiences, including seminars and conferences
• Gas expenses for business-related traveling
• Health insurance
• Internet and phone costs

Bear in mind that you need to make completely accurate deduction calculations—an educated guess isn’t good enough for the IRS. So how exactly do you do that? Read IRS Publication 535, which explains which expenses are (and aren’t) eligible for deductions. Publication 535 also tells you how to calculate deductions. Some types of exceptions just require you to tally receipts (which you’ll want to store for several years in case of an audit). Others, like home office deductions, require you to use a formula to write off the right deduction amount.

We recommend consulting with an accountant or tax advisor who can help you calculate deductions and help you in the event of an audit. Alternatively, tax-filing software includes instructions and information on how exactly to calculate your specific business deductions.

Once you’ve used your 1099 forms to accurately calculate your income, you’ll need to fill out a few additional tax forms to file with the IRS:

• Form 1040. This form reports your individual income to the IRS. Sole proprietors, freelancers, contractors, and any other self-employed persons will file their income taxes with Form 1040.
• Schedule C. This form attaches to Form 1040 and breaks down your business’s profits and losses over the course of the year.
• Schedule SE. This form also attaches to Form 1040. It helps you calculate the self-employment tax, or the combined Social Security and Medicare taxes all contractors are required to pay. The self-employment (SE) tax is 15.3% of your annual income.

You’ve assembled all your documents and filled out all your forms. Now it’s finally time to file. The IRS explains all your filing options, including a list of IRS-approved electronic filing options like TurboTax and H&R Block. While you can print out all your tax forms and send them and your payment via mail, we (and the IRS) strongly recommend filing online instead. It’s faster, easier, and more secure.

As for paying your taxes, the IRS’s online payment portal gets the job done the quickest. If you’re using tax software, you should be able to pay through the software itself. And if you’re working with an accountant, they can help you make the payment.

If you’re going to owe more than $1,000 on your annual taxes for self-employment income, you should make quarterly tax payments. A good rule of thumb is to prepay at least 90% of your current year taxes (or 100% of the amount you paid the previous year). If you skip quarterly payments and instead pay a lump sum for the entire year, you could owe a penalty for underpayment. Quarterly taxes are typically due on January 15, April 15, June 15, and September 15 each year.

If you don’t have your tax paperwork done in time, you can request a tax-filing extension online for free. However, note that this extension grants you more time to file, not extra time to pay taxes. In other words, you still have to pay your taxes on time—you’re just delaying the paperwork by a few months.

The easiest way to get an extension is by paying your estimated taxes using the IRS’s online payment portal. Just look for the extension tab while moving through the portal. Tax extensions bump your paperwork-filing deadline back six months. If you apply for an extension, expect to have your paperwork in order no later than October 15, 2021.

Unless you file for an extension, taxes for independent contractors are due on May 17, 2021.

Dealing with taxes after a bad year is the furthest thing from fun we can imagine, and no one can blame you for dreading the prospect. But if you stick to the four straightforward steps listed here, you should be able to get your taxes done with the minimum amount of stress possible. Good luck—and don’t forget to celebrate once you’ve finished filing.

Need to file taxes as part of an S Corporation or LLC, not as an independent contractor? Our guide to paying small-business taxes will help.

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