How to Estimate Tax Bracket as an Independent Contractor
The thought of working as an independent contractor may seem like a liberating thing, no more bosses looking over the shoulder and the ability to set one's own schedule. However, one of the major drawbacks of being an independent contractor is complicated taxation issues. Before entering into life as an independent contractor it can be helpful to estimate the likely tax bracket involved.
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Instructions
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1
Determine the filing status of the independent contractor. The possible filing categories are: single, joint, qualifying widow/widower, head of household and married filing separately. Each category can affect the amount of taxable income an independent contractor must recognize.
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2
Total all the payments received as an independent contractor. Be sure to keep copies of all checks received in case of audit.
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3
Verify any relevant business expense as it relates to the contracting work. If the contracting work requires a contractor to drive to different locales, then that mileage is deductible (see below).
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4
Subtract the deductible expenses from the total independent contractor revenue. This total will give the taxable amount of the independent contractor payments before taxable exemptions.
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5
Ascertain what standardized deductions the independent contractor qualifies for. For instance, the deduction is larger for a married couple than single person. In addition, the deduction can increase if the contractor has dependents.
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6
Deduct the standardized deductions from the figure attained in step four. This figure is the total taxable amount for the independent contractor.
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7
Identify the tax bracket for the current year and compare the figure attained in the previous step to determine the independent contractors' tax bracket.
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Tips & Warnings
When filing any personal or business returns a person should consult a professional.
