If everybody had to file independent contractor taxes, we’d see a revolution in our nation’s tax code.
Most people work for an employer at W-2 jobs where their taxes are automatically take out each pay period. They never have to think about it, are mainly concerned with their net take-home pay, and most of them probably never look at their pay stub to see how much they’re paying in taxes.
Independent contractors, freelancers, and other 1099-type workers, on the other hand, know all too well how much they’re paying because they have to do it themselves. It can be a painful reality check every few months.
So in this post, we’re here to help guide you…the hard-working self-employed independent contractor…through it all with some essential tips and strategies to make filing your taxes easier. (Plus a few ways you can keep more of your money, too!…Because we think you deserve it.)
Independent Contractor Taxes
We’ll begin with an “independent contractor” definition just to make sure we’re all on the same page. Someone is generally considered an independent contractor by the IRS “if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”
To further clarify the contractor vs employee difference, the IRS states:
You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed.
Additionally, if you are regularly and indefinitely on a company’s payroll where you receive benefits such as health insurance, paid time off, and your work is essential to the overall production mission of the business…you’re probably an employee. (We covered this more in another post titled “Why It Matters To Know The Difference Between Employee and Contractor.”)
Independent contractors are not employees. They may go by many names: freelancer, gig worker, consultant, solopreneur, small business owner, etc. But they are all self-employed, and their earnings are subject to self-employment taxes.
Filing Taxes As A Contractor
Your tax responsibilities as an independent contractor require a little more work on your part than a traditional employee. You are required to file quarterly taxes with a few different tax deadlines and use different tax forms.
Independent contractors must pay their own federal and state (if necessary) taxes to the IRS and their state revenue departments.
Note: Residents of Alaska, Florida, Nevada, South Dakota, Tennessee…where our firm has 6 convenient locations…, Texas, and Wyoming can breathe a sigh of relief since they do not have to pay any state income taxes. To learn more about your state, see this chart of 2024 State Individual Income Tax Structures from Taxfoundation.org.
As an independent contractor you are fully responsible for paying Social Security and Medicare Taxes. Traditional W-2 employees split the cost with their employers, but you get to pay 100% yourself. H&R Block has a good article on self-employment tax for further reading on this.
Additionally, you must pay estimated taxes four times a year instead of having them deducted regularly on your pay stubs the way employees do. (More on tax filing deadlines in a minute.)
1099 Tax Form
As of 2020, independent contractors must use Form 1099-NEC or 1099-MISC to report nonemployee income you receive. Companies who contract with you for services are required to provide one of these 1099 forms whenever you are paid more than $600 in the course of a year.
Schedule C Instructions
Independent contractors operating as a sole proprietor can use Schedule C to report income from their business. This is included with your personal 1040 tax filing at the end of the year.
If your little company is more of a “side hussle” and doesn’t seem like it’s big enough to be called a “business”, be sure to check out this helpful PDF from the IRS on “Is Your Hobby A For-Profit Endeavor?” If it turns out that they seem to think it qualifies as a legitimate for-profit business, you’d definitely better treat it as one by reporting your income (and losses) on a Schedule C.
Read more: “How Sole Proprietors Are Taxed And Why It Matters To You”
Tax Filing Deadlines
It doesn’t do any good to file your taxes accurately using all the right forms if you don’t do it on time. The IRS frowns on being late, so to avoid any unnecessary attention it is in every small business owner’s best interest to make sure you know all the important tax filing deadlines.
Here are the 2025 tax filing deadlines if you are making estimated payments:
- For Q1 (January 1 – March 31) – April 15
- For Q2 (April 1 – May 31) – June 15
- For Q3 (June 1 – August 31) – September 15
- For Q4 (September 1 – December 31) January 15, 2026
Note: If you file your tax return by January 31, 2025, and pay the balance due in full you do not need to make the Q4 payment that would otherwise be due on January 15.
(To know for sure if you are someone who needs to make estimated tax payments, the IRS has set up an Interactive Tax Assistant with a short 10-minute quiz.)
Estimating Tax Liability
Since independent contractors need to make quarterly estimated tax payments, it is important to know how to accurately do that so that you aren’t over- or under-paying your taxes.
Estimating taxes can seem complicated, but it doesn’t have to be. Forbes recently posted a helpful article outlining 3 ways to estimate your taxes. Basically, you can:
- Use last year to predict this year. This is fairly easy if you expect your income to stay close to the same.
- Use the worksheet included with IRS Form 1040-ES.
- Use tax software.
- Use the IRS’ Tax Withholding Estimator.
You have the option to mail a paper copy or file online by setting up a free account at IRS.gov/payments. Your CPA can help you do all of this, so be sure to contact a good one before your year begins.
Tax Saving Strategies
Even though you have to pay all of your Social Security and Medicare taxes yourself, you can make up the difference (and then some) by minimizing the overall amount of taxes you have to pay.
Here are several tax-saving strategies you can do no matter what type of independent contractor work you do:
- Save for retirement. In the same way that no one else is paying your employment taxes, no one else is contributing to your retirement fund. You can be prepared for the future, reduce your current pre-tax income, and possibly even lower your tax bracket by setting up a Roth IRA, Solo 401(k), or SEP IRA.
- Write off taxes. Speaking of self-employment taxes, did you know they’re deductible? So are several others you’re probably paying. Talk with your CPA to make sure.
- Claim all of your deductions. You may have lots of overlooked deductions in your bsuiness without even knowing it. Check out “16 Small Business Tax Deductions To Really Save You Money This Year.”
- Be generous. Not only are cash donations deductible, but so are “in-kind” contributions like old office equipment and furniture.
- Continue reading for more ideas: “10 Tax Strategies That Will Save Your Small Business Money”
Proactive Tax Management & Professional Tax Advice
If you are self-employed as an independent contractor, you have enough to keep up with already. You shouldn’t have to stress over managing taxes on top of everything else!
Three of the best things you can do are staying informed, staying proactive, and seeking help. Our team of accounting and tax pros have decades of experience helping freelancers and independent contractors through the tax filing process. We know what you’re facing and have what it takes to guide you through it all.
Schedule a call today to learn more!