How Is An Independent Contractor Taxation Different From General Contractor tax?
Tax payment is supposed to be a problem that takes some time to deal with for all contractors. Contractor tax payment is a little complex as the percentage of the tax need to be paid is dependent on the type of contract that the person is under. As a self-employed person, the taxes paid by them are different from that of a contractor working under a company. So, an independent contractor is considered a sole proprietor by the IRS, as in the contractor gets paid as usual but the payment is not considered as wages or income but is considered a business income.
How does being an independent contractor affect the taxes?
An independent contractor does not have any federal income tax withholdings that is, there are no deductions for social security and medical insurance. This does not stop the person from paying taxes, the Contractor tax payment is limited to state and federal tax for the income generated by the business. As the tax for social security and medical insurance is not included directly, a tax combined with the income tax called the self-employment tax. So, for an independent contractor, taxes have some difference. While filing taxes, the contractor has to include a form called a Schedule C. This form has to include the total income of the business minus the expenses that the business has to be pay. There is also a replacement form called the schedule C-EZ that can be filled out in a few minutes. It is just a form that states the total income and the expenses are summarised.
How to decrease the taxable amount for an independent contractor?
An independent contractor is considered as a sole proprietor while filing taxes, so a Contractor tax for the income obtained can be decreased by filing the expenses that are spent on the business. For any such reason that is filed, there should be proper records that are made at the time of spending. Any spending of the money for business purposes can be recorded and filed as expenditure for the business. All such recorded income should be filed with the date, amount and the purpose of spending. So, a Contractor tax payment is actually simpler than it looks at first. If the business is simple, the tax calculation process can be simple and the person can do their own taxes. But taking the help of a contractor tax calculator can be really helpful as they help in retaining more than 90 percent of the income obtained by the contractor and pay the tax with the rest.
So, an independent contractor that gets paid based on a contract basis is considered as a self-employed person and has to pay the taxes based on the total income or profits, they get on a quarterly basis. Doing their taxes own taxes is fine for a simple contract, but when there is a lot more to it using a Contractor tax payment calculator is also advantageous as they help save a lot of the income from getting taxed.