As an independent contractor, it is essential to be aware of the taxes you are responsible for paying. With the 2020 tax season approaching, it’s important to understand what you need to do to stay compliant with the Internal Revenue Service (IRS) regulations.

One of the most significant aspects of being an independent contractor is paying self-employment taxes. Self-employment taxes include Social Security and Medicare taxes. In 2020, the self-employment tax rate is 15.3%, which is a combination of 12.4% for Social Security and 2.9% for Medicare. However, only the first $137,700 in income is subject to the Social Security tax, while all income is subject to Medicare tax.

It`s important to note that these taxes are in addition to federal income taxes, which independent contractors are also responsible for paying. Federal income tax can be paid through quarterly estimated tax payments, or it can be paid in full at the end of the year. The amount of federal income tax owed varies based on an individual`s income, deductions, and credits.

To avoid penalties and fees, independent contractors should be sure to keep thorough records of all business-related expenses, including receipts, invoices, and bank statements. This way, they can accurately deduct eligible expenses on their tax returns.

Another important aspect of independent contractor taxes is understanding the difference between a W-2 employee and a 1099-MISC contractor. W-2 employees receive a regular paycheck from their employer, and their employer withholds taxes from their paycheck. 1099-MISC contractors, on the other hand, are responsible for paying their own taxes, and their clients are not required to withhold taxes from their payments.

It`s essential for independent contractors to accurately report their income to the IRS. The IRS requires businesses to issue 1099-MISC forms to contractors who earn more than $600 throughout the year. Contractors should ensure they receive their 1099-MISC forms and report all income on their tax return.

In conclusion, independent contractor taxes can seem overwhelming, but staying informed and organized can make the process less daunting. Being aware of self-employment taxes, federal income taxes, and record-keeping practices can help independent contractors accurately report their income and avoid penalties. By taking the necessary steps to stay compliant with IRS regulations, independent contractors can operate their businesses with confidence.