Anyone who works for an employer gets a W-2 by the last day in January each year. However, those who are self-employed will receive Form 1099 from any group that gave you more than $600 for services rendered in the previous tax year. What should independent contractors know about their tax returns?
Most Business Expenses Are Deductible
Independent contractors can reduce their taxable income by writing off a variety of business expenses. An additional phone line in your home, a home office and money spent on advertising are all examples of expenses that can reduce your taxable income. If you hire employees, the money that you pay them can also reduce your taxable income. Talk to your accountant to get a comprehensive list of expenses that can be deducted.
Don’t File Your Tax Return Until You Have Each Form You Need
If you worked for multiple organizations, you should get a Form 1099 from all of them. Do not file your tax return until you have all the forms that you are expecting. If you guess, you could forget to report some of your income. That will be a good reason for the IRS to come after you with an audit. If you need more time, you can file for an extension to file your taxes. That allows you to wait until October to file your taxes.
Keep Solid Records For At Least Three Years
Make sure that you are keeping good records to substantiate every deduction that you take. The IRS can audit you for up to three years after you file your tax return. In the event that you have not correctly reported your income, the IRS has up to six years to audit you. Therefore, you may also want to print out your tax return to have a copy of it in the event that you are contacted more than three years after you file your return. Keeping good records will typically result in no change to your tax return even if you are audited.
Working for yourself can be a lot of fun. However, you need to worry about your tax situation as well. Make sure that you take all deductions that you are entitled to, don’t file your tax return until after you have all relevant forms and always keep good records. Doing those three things will make tax time much easier for you.