If you’re an independent contractor, congratulations! You’re one of the lucky 30% of Americans who gets to be self-employed.
However, anybody who is self-employed knows that it comes with its benefits and its downsides. The good news is that you can do a lot to limit the latter.
Let’s talk about how to make the most out of your career as an independent contractor, and some tips to help you succeed!
What Is an Independent Contractor?
An independent contractor is somebody who is legally self-employed. You may have contracts with a company and work solely with one or two, like an Uber/Lyft driver, or you might work with 30 of them, like a commercial plumber, but you will still not be employed by any of them.
If you are employed, you will be considered an employee, fill out a W4 form at the beginning of your employment, have taxes withheld, and receive a W2 form at the end of the tax year to file. Assuming more taxes were withheld than owed, you will most likely receive a tax refund for that fiscal year.
An independent contractor receives 1099 forms from any company or person they received an amount in excess of $600 from in the previous fiscal year. You can choose to pay taxes quarterly or annually, but you will be responsible for saving up and paying them off when they are due.
Tips For Independent Contractors: Keep Receipts
This is number one on the list for a reason. The most important thing you can do right off the bat is saving receipts. If you’re not good at keeping things organized in a binder, you can take pictures of the receipts and upload them to an app or a folder in your photos for safekeeping.
This will save you big money when tax time comes. When April 15th comes around next year, are you going to remember that one piece of equipment you bought from Walmart last weekend? No, you’re not.
Even if it’s $5, it adds up over time, and when you put them all on an itemized list at tax time, you’ll be amazed at how much those small expenses add up. Be very diligent at saving your receipts.
Save For Taxes
As we mentioned, your taxes are not being withheld regularly as they would at a regular job with a W4 tax structure. Because of this, your best bet is to have a separate account for tax money specifically. You can have a savings and checking account for other business and personal financial reasons, but one account should be specifically for taxes.
You should be saving up at least 10% of your income for taxes. You will be able to deduct a lot of your business expenses, but 10% is a good rule of thumb. This way, if you wind up owing 5%, you have a good head start on saving for the next year! If you wind up owing 15%, you won’t have to break the bank as much to pay that off.
Don’t consider this a loss of income, consider it what would be happening if you were at a job. Only consider 90% of your earnings for spending. You still have to pay taxes, it’s just at a different time, so set yourself up for success!
Know How To File Taxes
You have your receipts and you’ve been saving money in a separate account for tax time, but is that enough? Absolutely not.
If you’ve been working at a regular W4 job for your life and you’ve never filed self-employed taxes, you’re in for a lot of surprises if you don’t do your research.
Some of them are pleasant, however! You get to write off a lot of expenses, many of which you’d likely be paying for with or without your self-employed status. Your cell phone bill is a common example of this.
There’s a lot of important information to know about taxes as an independent contractor that could save you a lot of money and headaches, down the road. If you’re underprepared, the last thing you want is an audit.
Remember, You’re Still Working!
To some, this may sound obvious, but don’t let your income suffer just because you’re a freelance worker. If you view your freelance work as a full-time job, you’re bound to make more money than you would at a typical 9-5, be overall happier, and less stressed.
However, if you view your gigs as something you can push off and do whenever, you’re in for some trouble. Setting a schedule for yourself and sticking to it is a great idea. Don’t stop working in the middle of the day just because you can. It’s a rookie mistake!
Don’t Forget Your Marketing Skills
Everyone can improve on their marketing skills in an ever-changing world like this. There’s always room for improvement. Make sure you’re using social media to your advantage, reaching out to clients, utilizing business cards, and having an online presence! It will pay off in the long run!
Spread Your Eggs
Last, but not least, is to diversify. No matter what kind of contractor you are, if you only work for one company, you’re in a vulnerable position. Companies can end a contract at any time.
If you’re an Uber driver, you could total your car any day, or fail a background check, or just get booted from the platform. If you’re a writer, having one client is a big mistake.
Spread your eggs into multiple baskets so you can secure long-term financial success!
There are so many freedoms and responsibilities that come with being an independent contractor, and make sure that you’re making the most of both!
Keep working, keep thriving, and keep up to date with our latest news in the business and tech worlds so you can be prepared for whatever comes your way!