If you’ve just started working as an independent contractor, congratulations! 1 out of every 10 workers is an independent contractor, according to the Labor Department. Contractors often enjoy benefits such as setting their own schedule and working in a manner that is most effective for them.
Another fun tidbit you’ll learn about is paying taxes — on your own. Yes, independent contractor taxes are your responsibility now.
Are you worried about how you’ll manage or what you need to know to ensure success? Here’s how to figure out what you need to save every year, even if you’ve never done this before.
Know the Payment Due Dates to Pay By
When paying taxes as an independent contractor, you can choose two ways to make your payments. The first is to do your taxes just like any other person and pay by April 15th.
However, if you’re worried about a high tax bill accumulating after a year and don’t want to take those chances, there’s a smarter way to go about this.
In that case, you could make four small monthly payments that are spread out during different seasons of the year. According to the IRS, those dates are as follows:
- April 15th
- June 15th
- September 15th
- January 15th following year
As many independent contractors find, spacing out payments avoids the feeling of getting overwhelmed and can help you save money in the process.
Understand How to Calculate Income
Before you start saving money, it’s necessary to figure out what your income is after taxes. When you file taxes, you’ll use Schedule C, which is a form that allows you to deduct business expenses.
Some of these expenses include:
- Office supplies
- Programs (such as MS Word) that are necessary to do your job
What you have after these expenses is your income. Of course, this is kind of difficult to know in advance.
To make things easier for yourself, set aside 25% to 30% of your income every paycheck. If it helps to have a visual, you can use a service such as this pay stub maker, and see how you’re setting aside money every time you’re paid.
This can feel encouraging and help you save. Remember, in the case of dealing with taxes as an independent contractor, it’s better to save too much than not enough.
Learn How to Save Money for Independent Contractor Taxes
Now that you know to take 25%-30% out of every check, you need to keep it somewhere safe where you won’t touch it. The best way to do so is by opening a separate savings account that you use only for taxes.
Don’t touch the money until it’s time to make a payment. If you leave it in your checking account or have it as cash lying around the house, you’ll feel tempted to spend it.
If you’re still new to savings, you can check out this article here, and learn how to get started.
Just because you’re working for yourself doesn’t mean tax time needs to be tricky. Independent contractor taxes are simple enough to handle if you understand writing off deductions and how much to save every paycheck.
Once you begin using these steps, you’ll feel confident there’s enough in the bank when it’s time to pay taxes.
Curious about other tax topics? Learn more and see how you can file your taxes online, saving yourself time and money.