Tax Question about Working as an Independent Contractor
I just started working as an independent contractor and am curious about a few things. Hoping somebody has knowledge they could pass along!
- I’m thinking that contributing to a 401K will be beneficial when it comes to my tax liability. Any ideas on this?
- If I don’t file quarterly taxes and owe more than $1000.00 at the end of the year, what kind of penalty will I be paying? (keep in mind the retirement savings)
- If I don’t own property or have anything else that would benefit me from itemizing, can I still write off work-related expenses to cut down on my total amount owed?
Tax Answers on Working as Independent Contractor
- You likely don’t qualify for a 401K because you are an independent contractor. You could do a traditional IRA and deduct contributions in the year you pay them or due a ROTH IRA which has other tax benefits. For more info go Here
- You would get hit with the underpayment penalty if you don’t make estimated tax payments and owe over $1000. The amount of penalty will depend on the underpayment. You should make estimated tax payments. If you do not make estimated tax payments and cannot pay your balance due on the return, you will be in a world of hurt and it can be an expensive mess to get out of. Plus the penalties can really add up.
- If you are an Independent Contractor you would generally write off your business or sole proprietorship expenses on a Schedule C even if you choose to take the standard over itemizing.
Filing 1040-ES as an Independent Contractor
The following information should remind independent contractors to pay their estimated taxes using Form 1040-ES. They may also be required to pay self-employment taxes in addition to the federal income tax. Thus, it is better to plan ahead than face a surprise come tax day.