- Automated tax calculation for sales, payroll and federal
- Reminders on taxes and compliance filing
- Tax ready reports with P&L, expenses and balance sheets
- Instant access to top tax consultants for contracting companies
- Proficient counsel on contracting specific tax frameworks and tax-efficient strategies
- Minimizing tax liabilities and maximizing deductions
- Stay up to date on dynamic tax laws and regulations impacting contractors
Tax related FAQs for contractors
What are the essential tax obligations for a contracting business?
Contracting businesses have several tax obligations to fulfill. These typically include income tax, where you report your business income and pay taxes on your profits. Self-employment tax is also crucial; this covers Social Security and Medicare taxes for self-employed individuals. Depending on your location, you may be subject to state income taxes. Additionally, you might need to consider sales tax if you sell products or services subject to this tax. Payroll taxes, including withholding and remitting employee taxes, and property taxes if you own business property are other obligations to be aware of.
Is there a difference in tax treatment between contractors and employees?
Yes, there is a significant difference in tax treatment. Contractors are considered self-employed and responsible for paying their own taxes, including both the employer and employee portions of Social Security and Medicare taxes (self-employment tax). Employees, on the other hand, have taxes withheld from their paychecks by their employers. Employers also pay a portion of these taxes on behalf of their employees. Keep detailed records to substantiate your deductions.
What is the Section 179 deduction, and how does it benefit contractors?
Section 179 of the IRS tax code allows businesses to deduct the cost of qualifying equipment and property as an expense in the year the property is placed in service. This can provide significant tax savings for contractors who purchase and use equipment and machinery in their business.
Can contractors reduce their self-employment tax liability?
Contractors can reduce their self-employment tax liability by maximizing business deductions, contributing to retirement accounts (which lower taxable income), and, in some cases, by considering the S corporation tax status, which can help reduce self-employment tax.
What are estimated quarterly tax payments, and do I need to make them as an independent contractor?
Estimated quarterly tax payments are payments made by self-employed individuals, including independent contractors, to cover their income and self-employment tax obligations. If you expect to owe $1,000 or more in taxes when you file your annual tax return, you are generally required to make estimated quarterly tax payments to avoid penalties.
Are there any tax credits or incentives available to independent contractors?
Sales tax rules vary by location. Ensure you're aware of the specific requirements in your area and collect and remit sales tax as necessary.
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