How to Work as an Independent Contractor

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Working as an independent contractor has its own unique set of advantages and disadvantages. To maximize the advantages of working as an independent contractor you should know how to structure your services and business.

  • Determine what services you want to offer as an independent contractor. You may want to use your resume to determine what marketable skills you have. For example, if you have worked as an administrative assistant, you may want to market your skills as an office organizer, word processor or bookkeeper.

  • Determine how much you want to charge for your services. To do this, you will want to take into consideration the going rate for similar services in your market. You can find comparison rates by calling other companies that offer the same services and ask for a price quote on the services that you want to offer to clients. You can also check out job postings to see how much is offered to new employees in positions that utilize the services that you will be offering. When you have a base price, you will want to make sure that your asking price not only covers the base price, but that it also covers your expenses for delivering the service.

  • Learn about the record keeping that is needed. As an independent contractor, you will need to keep track of your expenses and your revenues. To do this, you can invest in a bookkeeping software program like Peachtree or Quicken, or you can simply write down the information in a notebook. Whichever method you utilize, you will want to keep all of the receipts that you get for your expenses and you will want to photocopy checks that are paid. To make sure that a receipt is not lost, keep it in a manila envelope that is clearly labeled "Receipts FY 20XX." In addition to keeping track of your financial information you will also want to set up files for each of your clients. Your client files should include the client's name, their address, their contact information, the service that you provide to them, and a chart where you can enter the work that you are scheduled to perform for the client, when the job is due, how much the service will cost, and when they paid for the service. Other records that you will want to keep include an invoice log, an accounts receivable log, and an accounts payable log.

  • Apply for an employer identification number. To do this you will need to go to the Internal Revenue Service's Web site (see link below) and download an SS-4 Form, or you can call the IRS Business and Specialty Tax Line at 1-800-829-4933, or you can apply online. It is important to get this number so you don't have to give out your social security number to the companies that you work for.

  • Learn about the tax filing responsibilities that you will have as an independent contractor. If you earn over $600 from any one company, then they will need to issue you a 1099 form. To issue you this tax form, they will give you a W-9 form, which is a "Request for Taxpayer Identification Number or Certificate." Here you will need to enter your contact information and either your social security number or EIN. When you file your personal tax return you will need to include a Schedule C or C-EZ, which are the profit and loss from a business forms, as well as the Schedule SE, which is the self-employment tax form. You may need to file other forms depending on what type of business you operate as an independent contractor. If you are not sure what forms to file at tax time, talk to a tax professional.

  • Determine what professional licenses and insurances you need for your field of work. As an independent contractor, you will not be protected by the insurances held by your employer. As a result you will need to determine what insurances you need to protect yourself in your field of expertise. To do this you can consult with a business insurance professional. In addition to obtaining insurance you will also want to obtain the professional licenses and permits that are required for your profession. For example you may need a business license, a CPA license, contractor's license, etc. Contact a professional organization for your field of work to determine what licenses are required, or you can contact your city hall for information about professional licenses required in your city or county.

  • Design a marketing strategy. Your marketing strategy should utilize your local advertising resources, as well as utilize your own creativity. Word of mouth, flyers, business cards, sponsorships, Web sites, message board postings, blogging, and networking can all be used to get the word out about your business.

  • Draft work agreements for you clients so that they know how much they will be charged, what the job will entail, when it will be completed, how it will be delivered, and when your fees will need to be paid. You can decide to be paid in advance or after the fact, depending on your preferences and the type of work you do.

  • Make sure that you maintain your professionalism at all times. This is a business and your appearance, work, and interactions with your clients will affect how much repeat business you get and how many referrals you get. Keep your appearance neat and clean, make sure that your communication is professional and respectful, complete projects on time and on budget, keep the lines of communication open and active between you and your clients, and offer follow-up services at a reduced rate or for free.

Tips & Warnings

  • Keep all of your receipts.
  • Jot down small expenses for business related entertainment and petty cash purchases on a calendar if a receipt is not available.
  • Make sure that you save a portion of your earnings to pay your federal and state taxes.
  • Taxes won't be taken out of your paychecks for you.
  • Independent contractors have little job security.
  • Independent contractors generally aren't covered by unemployment insurance or worker's compensation.

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