Tips to manage accounts for self-contractors
Being a self-employed contractor has its own benefits when it comes to accounts such as tax advantages and rebate benefits. However, it is very much required for the independent contractors to keep their records and tax claimants form in an organized manner so that they can produce necessary certificates after paying taxes and claiming tax returns. But, managing all these for a self contractor is not easy and can sometimes lead to conflicts. This is why every independent contractor should be able to manage their accounts effectively. Through this article, we will impart some effective tips for efficient and effective management of your accounts.
Verification of Independent contractor status
One should not assume that the status if a contractor is classified as independent only because the company mentions so or they report your income on the contractor rebate form. You should be able to protect your license and documents as per the IRS definition of an independent contractor. According to the IRS definition, an independent contractor is a person or an entity which works or provides services as a non-employee to other organizations. Moreover, IRS suggests that the independent contractor can follow their own process to get the job done and are not bounded to the methods of the organization that provides the contract. If you are still unsure about your status, kindly fill the SS-8 form with the IRS, which will determine your situation.
Organize the records
By this, we indicate you to sort out your financial receipts and log books. You are eligible for tax deductions as you are an independent contractor but you will have to produce the proof of your expenses so that you can claim them later on. The best ways to do so is by filing the receipts for equipment and supplies and track the services you needed for the assignment.
You have to understand that not all the indirect expenses are tax-free. The direct expenses are related to the job whereas indirect expenses occur as a part of doing the job. So, it is advisable that you understand what the expenses are that qualify. This category of deductions may include health care insurance, travel, retirement, and acquisition of professional services like lawyers and accountants.
A firm pays the employees their salary after deducting the taxable amount from their compensation and is paid to the IRS. But, an independent contractor is not a part of the organization and therefore, the whole technical headache will be on you. So, you can opt for quarterly tax payment which you can do by managing a separate tax account where you can keep a track of the estimated tax payments.
Now, these are some of the tips that come in handy for the contractors who understand, even a little bit, the world of finance. For the newbie contractors, it is advisable to outsource the financial part if you are not good in finance. Although it will eat into your savings a little it is preferable to have accurate accounts for a self contractor than to entangle yourself with the IRS.