How to File Taxes as a Contractor

Contractors can deduct the costs of materials and supplies from their gross income.

Contractors are considered self-employed individuals. If you're a contractor, the Internal Revenue Service allows you to take deductions for job-related expenses. This will reduce the amount of income you'll pay tax on. To properly file your tax return, you must report any income and expense activity on IRS Schedule C (Profit or Loss from Business) and attach the schedule to your 1040 income tax return. Additionally, as a contractor you may be subject to self-employment taxes, which are calculated on your net profit from business activity.

Instructions

1. Gather tax documents. Examples of documents you may need include 1099 forms received from completed jobs and receipts for your expenses. If you keep records in a bookkeeping database, print a profit and loss report. Otherwise, gather invoices and receipts for job-related income and expenses.

2. Calculate your gross revenue. This may be the amount reported on 1099 forms or the sum of payments received from customers by cash, check or credit card. Some customers might not issue you a 1099 form, but you still must include all payments received as income.

3. Calculate returns and allowances. Returns and allowances equal the total amount of returns, discounts and coupons that customers redeemed during the year.

4. Calculate expenses. There are many categories of expenses, and most job-related costs can be deducted from your gross income. The instructions for IRS Schedule C lists detailed information regarding specific expense categories (see Resources).

5. Calculate net income. Deduct returns and expenses from your gross revenue. The sum equals your net income. If you have net income of more than $400, you'll need to complete IRS Form SE (Self-Employment Tax). If you have negative net income, you have a loss for the year and do not owe self-employment tax. Report any profit or loss figures on the front of your federal income tax return.

Tips & Warnings

• As a self-employed contractor, consider opening a bank account specifically for work-related income and expenses. That way, your business tax items will already be separated from your personal activities at the end of the year.

References

• Internal Revenue Service: Who Is Considered Self-Employed?
• Internal Revenue Service: Self-Employed Individuals Tax Center

Resources

• Internal Revenue Service: Schedule C: Profit or Loss From Business
• Internal Revenue Service: Schedule C: Instructions
• Internal Revenue Service: Schedule SE: Self-Employment Tax
• Internal Revenue Service: Schedule SE: Instructions