An Independent Contractors guide to Tax Season

An Independent Contractors guide to Tax Season:
3 tips for 1099 employees

If you are self employed, or work as an independent contractor, there can be lots of positives. One of the biggest negatives however, is taxes. Here are some tips that can get you through tax season with less work, and more money in your pocket

SET UP AN LLC & S-CORP

If we were to recommend only ONE thing to an independent contractor, the self employed, or anyone on a 1099, it would be to set up an S-Corp. Not only does it make you seem more professional (“You run your own business? Cool!”), but the tax savings will change your life. 1099’s get taxed at a 15.3% rate. That is literally twice as much as your typically W2 employee (7.65%). However, if you set up an S-Corp, you can then run your salary through that, and those same taxes will drop to 3%. Simply put: You could be paying a 5th for taxes than you are now. 

TAX RATES

w2

7.65%

1099

15.3%

LLC/S Corp

3%

YOU CAN SAVE 5X ON TAXES THROUGH AN S-CORP!

YOU CAN SAVE 5X ON TAXES THROUGH AN S-CORP!

*These are averages that change based on industry, location and other factors

S-Corps are common practice among the best sales reps, photographers and self employed. Even former Vice President Joe Biden has an S-Corp that has saved him millions. It may sound complicated to set up, but the process is easy. Our team at COS Accounting can take care of the entire set-up, including your taxes. Schedule a call if you are interested in learning more, and finding out what you can save. Going with this option doesn’t mean you need to ignore the rest of this article, but it does make everything easier, and could end up saving you thousands of dollars.

Plan Ahead

Regardless of if you chose to set up an LLC & S-Corp, a good tip for tax season is to plan ahead. Unlike a W2 employee, your taxes aren’t being withheld beforehand, meaning that you won’t be receiving a refund, but will most likely be paying ALL your taxes for the year. So when tax season comes around, you better have an idea of what you need to pay, and how you are going to pay for it.  We recommend simple budgeting, putting away 15% of what you make every time you get paid, and not touching it until tax season ends.

Planning ahead isn’t just about saving money. For example, have you recently bought a car? Depending on the size and how much you use it for work, this could be a business expense. Or, do you have health insurance? If you currently do not have any health insurance, you will have to pay a fee come tax season. While employers typically provide this as part of their benefits package, you will have to figure out your plan on your own. Luckily, this is an expense that can be written off. Do your research and make sure you are protecting yourself with any major purchases or life decisions.

Track Everything

Like we mentioned above with cars or health insurance, one of the benefits of doing taxes as an independent contractor is the write offs. If you spent money on it, there is probably a way to write it off. Write offs aren’t limited to direct expenses either. For example, you can write off what you have spent on gas based on how many miles you traveled for work, or you can write off your phone bill based on how much you use it for work rather than personal. 

Common things you can write off include (but not limited to): 

  • Your Home Office
  • Internet Bill
  • Educational Resources
  • Subscriptions
  • Any Advertising Costs
  • Meals
  • Travel
There are so many ways to save on taxes, and we suggest working with an accountant who knows how to save you money every way possible. Our team at COS Accounting specializes in helping independent contractors save on their taxes. Right now, we service thousands of individuals, helping them see an average tax savings of over $4,000! Schedule a call with a member of our team and let’s start saving you money today. 

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