How to Figure Your Taxes as an Independent Contractor
Workers who freelance their services are generally referred to as independent contractors. With an independent contractor, no employer decides how their work is done, nor does an employer have the power to do so. And since independent contractors are responsible for maintaining complete accounts of their earnings, they are also responsible for figuring their taxes and making all necessary tax payments.
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Instructions
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Estimated Taxes
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Figure your adjusted gross income, deductions, credits and taxable income for the year. Review your prior year return to provide yourself with an idea of what your income, credits, deductions and taxes are for the year. Adjust your current year tax information up or down depending on whether you had an increase or decrease in income or a life event, which made you eligible or ineligible for certain credits. Use the estimated tax worksheet found in Publication 505 to guide you through your estimation.
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Divide the total estimated tax needed, line 17, by 4 to get the amount of your four estimated tax payments. Reduce your payments by any overpayments in estimated tax from a previous year.
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Mail one of your four equal estimated tax payments on April 15th, June 15th, September 15th and January 15th to the address listed in the instructions to IRS Publication 505.
Income Tax
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Print a copy of form 1040 and schedule C as both these forms are designated for taxpayers who are claiming earnings from self-employment.
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Input your name and address on both form 1040 and schedule C. Enter your filing status and exemptions in sections 2 and 3 of form 1040. Locate your 1099s for the tax year and total them. Enter your gross profit on line 5 and your gross income on line 7. Enter your losses for advertising, commissions, fees, repairs, utilities, wages and other business deductions on lines 8 to 27. Total the amounts from lines 8 to 27 and enter that amount on line 28. Subtract lines 28 from line 7 to get your tentative profit. On line 30, enter the expense for the business use of your home and attach form 8829, if applicable. Subtract lines 30 from 29 to get your net profit or loss. Enter your profit on line 12 of form 1040. This is your taxable income. Enter any adjustments to your income on lines 23 to 37, taxes and credits on lines 38 to 55, and other taxes (included self-employment tax) on lines 56 to 60. Enter any estimated taxes you paid on line 62. Your estimated tax plus your tax on line 44, which is applied on the basis of your tax rate (found in the tax table in the 1040 instructions), is your tax.
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Attach form 1040 to the schedule C and mail it to the IRS office that processes returns for your area or submit it electronically.
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