The life of an independent contractor can come with freedom. If you work a “gig job,” you probably can set your schedule and work when you want. More importantly, you can possibly work as much as you want. Income inches, or skyrockets, upwards when you control your destiny this way. So, why do so many independent contractors suffer from money problems? Usually, they didn’t correctly audit and manage their finances. Disaster then ensued. Don’t fall into any avoidable financial disaster scenarios. Here are three tips to guide an independent contractor down a better financial path.
Keep Track of Expenses
Independent contractors fall under the category of self-employed persons. They usually file their taxes as sole proprietors through the IRS’ Schedule C form. Tax obligations apply to the profits earned from working and not on the gross income. So, you must keep track of all your expenses to deduct them from your filing. Otherwise, you would be paying more than is necessary when April 15 rolls around. Hiring an accountant makes sense here. You don’t want to take any improper or false deductions. An accountant can review the expenses and determine which ones are tax-deductible.
Taxes for Independent Contractors
Payments to independent contractors are presented on 1099s. Since independent contractors aren’t employees, no withholding taxes are collected. It becomes the self-employed person’s responsibility to make estimated tax payments during the year. According to Columbia MD Accountants, you can plan for your tax payment by looking at your previous year and estimating your taxes based on your current assets. Of course, you can meet with an accountant to determine your quarterly payment amount. Depending upon your final tax bill, you may receive a refund or owe more money. The bill relates to payments made in light of income earned and tax due.
Don’t Overspend on Unnecessary Items
Purchasing a reliable smartphone and computer makes sense. Spending thousands of dollars for the newest and highest-end merchandise, however, could be a bad idea. As long as the tech is reliable, why pay more for features you won’t use? The same logic can be applied towards purchases of stationary, workstations, and more. According to the Independent Contractors Benefits Association, a common mistake involves losing track of your budget and buying things you don’t need or paying more than you should. Overspending eats into profits and savings. Since independent contractors may suffer from “lean times” during the year, wasted money eventually catches up with you.
Thorough financial management helps keep an independent contractor on the right path. Don’t become lax with any fiscal duties. Being proactive with these duties will help you to avoid future financial problems.
If you’ve had some trouble managing your finances, we can help! Contact us today to see which package works best for your needs.