The costs of accounting software for independent contractors vary. There are free and paid versions, and typically the paid versions have more features. Some apps offer free 30-day trial periods and others offer discounts for paying annually in advance. Accounting software for independent contractors is accounting software that is geared toward independent contractors rather than big companies.
Add your estimated self-employment taxes ($14,130) and your estimated federal income taxes ($13,212), and you get an estimated federal tax liability of $27,342. Divide that number by four to determine the amount ($6,835.50) of your estimated quarterly payments. If you’re an independent contractor, employers don’t have to pay into your health insurance, life insurance, bonuses, stock options, worker’s compensation, unemployment taxes, payroll taxes, or 401(k) contributions. Independent also don’t get employee benefits, or protection from employment laws, like the Fair Labor Standards Act (FLSA), the Occupational Safety & Health Act (OSHA) and Title VII of the Civil Rights Act. If an employer-employee relationship exists (regardless of what the relationship is called), then you are not an independent contractor and your earnings are generally not subject to self-employment tax. However, your earnings as an employee may be subject to FICA (social security tax and Medicare) and income tax withholding.
Accounting is how a business organizes, records and interprets its financial information. It provides an overall view of the financial health of an organization, and includes components such as transactions, taxes, budgets and projections. The current self-employment the difference between cash transfers and in-kind benefits tax rate is 12.4% for Social Security and 2.9% for Medicare — a total of 15.3% just in self-employment tax. The good news is that while you need to pay the entire 15.3% tax, you can take half of what you pay as a deduction from your income.
Once you know how much you earned, you’ll need to figure out how much you must pay in self-employment taxes. Using Schedule SE, you calculate that you owe self-employment taxes of $5,914. Half of this tax that you pay ($2,957) is taken as a deduction on Page 1 of your Form 1040. The NLRB ruled 3-1 Tuesday to overturn the board’s decision during Donald Trump’s presidency that elevated workers’ “entrepreneurial opportunity” over other factors when classifying them as employees or contractors. If you make those payments on time, then you shouldn’t have to worry about a hefty tax bill when you file your federal return. Because the other 7.65% is essentially a deduction representing the FICA tax your boss would pay if you were an employee and not self-employed.
QuickBooks is great for a wide range of businesses from solo freelancers to brick-and-mortar empires. You should hire an accountant when the tracking, analysis and reporting of all the financial information related to your business are too complicated or overwhelming for you. Outsourcing this service gives you the time to stay in your zone of genius and keep working on what you are best at. There are a number of business deductions you can take as an independent contractor, including health insurance, home office deductions, mileage and deductions for your phone bill.
If you’re just starting out or only have a few clients, then start with a basic version of accounting software that is less expensive. You can always upgrade to a version with more features once your business grows. Paid add-on services include online ACH and credit card processing and payroll. But these cost more than some competitors, so if you process a lot of payments, you may end up paying more with Wave’s “free” accounting than you would with a paid app. If you are just beginning your business journey and don’t have any employees, starting out with some reliable accounting software and a solid organization system will likely be enough to keep you afloat for a while. But once expansion begins to start, don’t delay on finding a good accountant who will keep your best interests in mind.
Check with your state’s business resources for deadlines and any required forms. How you report the income you earn as an independent contractor is different than how you’d report it as an employee. As an independent contractor, you’re required to file Schedule C along with your personal tax return.
No matter which you opt for, you’ll want to select someone who has plenty of experience with the type of small business you have and who you feel comfortable sharing sensitive information with. As an independent contractor, be prepared for additional tax deadlines. Now, in addition to your personal income tax deadline of April 15, you’ll also have both federal and state quarterly tax deadlines. A ruling that workers are employees under the NLRA, which provides the right to unionize and protections against unfair labor practices, doesn’t automatically make them employees under another law. Knowing you have to pay that much on top of your income taxes may be disheartening. The good news is you get to write off half your self-employment taxes as an above-the-line deduction.
Each additional TurboTax Live Self-Employed federal tax filing is $199.99 and includes live on screen tax advice from a CPA or EA, and state tax filing is $44.99. To learn more about an independent contractor agreement for an accountant and bookkeeper, you can post your legal need on UpCounsel’s marketplace. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.
They may or may not have written contracts spelling out the services they’re supposed to perform and their compensation for those services. An independent contractor is a self-employed person or small business owner who performs services for another person or entity. Read more about misclassification and the difference between hiring employees and independent contractors. If you’re self-employed and are paying out of pocket for all your business expenses, it’s important that you keep records for and deduct as many of them as possible on your taxes. Remember that as an independent contractor, you’ll have to set aside all of your self-employment taxes, Social Security, and Medicare contributions yourself. If you did more than $600 of work for a particular client, they’re required to file Form 1099-MISC and send you a copy of it.