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How to Do Taxes for Contract Work

As a contract worker, it is very important to know how to do taxes properly. Whether you are a freelancer, consultant, or self-employed entrepreneur, you have to prepare and file your taxes differently than regular employees. In this article, we’ll discuss the basic steps on how to do taxes for contract work.

Step 1: Determine Your Tax Obligations

Before you start preparing your taxes, you need to determine your tax obligations. As a contract worker, you are responsible for paying both the employer and employee portions of Social Security and Medicare taxes. This means you have to pay self-employment tax, which is a total of 15.3% of your net earnings.

Step 2: Keep Accurate Records

Keeping accurate records of your income and expenses is very important to ensure that you are paying the correct amount of taxes. Keep track of all the payments you receive from clients, as well as any expenses incurred in your line of work such as equipment, supplies, travel expenses, and home office expenses.

Step 3: Choose a Tax Filing Method

There are two options for filing your taxes as a contract worker: you can file as a sole proprietor or as an LLC. If you choose to file as a sole proprietor, you will report your business income and expenses on a Schedule C form. If you choose to file as an LLC, you will have to file a separate tax return.

Step 4: Fill Out the Appropriate Tax Forms

Once you have determined your tax obligations and chosen a filing method, it’s time to fill out the appropriate tax forms. You will need to fill out Form 1040, Schedule SE, and Schedule C or the appropriate LLC tax forms.

Step 5: Pay Your Taxes

After you have filled out your tax forms, the last step is to pay your taxes. If you owe taxes, you may need to make estimated tax payments throughout the year to avoid penalties and interest charges. You can pay your taxes online, by mail, or in person.

Conclusion

If you are a contract worker, doing your taxes may seem overwhelming at first, but with proper planning and organization, it can be done quickly and efficiently. By following these steps, you can ensure that you are paying the correct amount of taxes and avoiding any penalties or legal issues in the future.