Home Improvement Contractor - Licensed Contractors

I am thinking about being an independent contractor but I need to to know about the tax aspect of it.?

I am planning to take over my best friend's job when she leaves in 2 weeks but it is an independent contractor type of position and I want to know the tax side of that before I completely agree. What are the tax rules and what is the best way to handle them?

Public Comments

1. As an independent contractor, you'll need to pay both sides of the social security and medicare tax (FICA) both employer and employee. This means an extra 7.65% tax. Just make sure that your hourly wage is higher as a result of this. Additionally, you probably don't get any benefits (medical or otherwise) as an independent contractor, but if you already have health insurance from another source this isn't a problem for you. Make sure to make estimated tax payments. Since the company will not be withholding taxes from your paycheck you'll need to send in quarterly estimates to the IRS and your state (if you live in a state that taxes income). I'd suggest contacting a CPA to help you with figuring out how to deal with the estimates if you don't want to deal with it yourself. Good luck in your new job
2. Do you mean a construction contractor? Are you licensed for that?? 1. You can;t just take over as an independant contractor. You need to have a general contractors license. 2. You need to register with the stat and the city and poay whatever fees they want. 3. At the end of the year, you just pay taxes like anyone else. You figure out how money you made and pay taxes accordingly I would advise just hiring a pro for taxes. They will find more decuctions and file it properly
3. Medicare, social security and state taxes you are responsible for the job won't take care of that. All of your income needs to be reported on a Sch C and you will be subject to self employment tax (owwee!) If it were me I would go to IRS.gov and look at a Sch C and see what if anything you could deduct and the end of the year. If you can deduct make sure you keep all recipts and track of all your expenses. If you can't deduct anything I would seriously consider another route. My dad always discouraged me from taking on a job like that because it's to easy to spend the $ and not put it back for tax time.
4. The correct way to handle the tax issue, is on each paycheck take 20% out and put it in a savings account. Contact the IRS and request a 1040-ES form or download the form 20071040-ES (make sure it is for the correct tax year), from their website. Mark your calender for Jan 10, April 10, June 10, and Sept 10. On this date withdraw all the 20% deposits made upto the first day of that month and write check/money order for the amount and mail it to the correct address based upon the state you live in with the 1040-ES voucher. (make sure you write your social security number, and 2007 1040-ES on the check or money order). Keep a record of how much you sent. I know they do not require payment until the 15th, put you want your check to arrive before or on this date. If you wait until you file your taxes, you will have a pentaly(unless you make less than $600), for not making deposits each quarter and you will have a large tax bill to pay all at once. By Feburary of next year you will receive a 1099-Misc Form the contractor stating how much you have been paid. Use this figure to complete your Form C of your tax return. You may be able to deduct a portion of your travel to and from the job site, because your home will be your place of business. The deposit information and dates deposited will be needed to complete your tax return. Consider having your taxes done by a professionial. I wish you the best.
5. More people get into trouble with the IRS working as contract labor than anything else, they fail to make their quarterly 1040-ES payments and when it comes time to pay taxes on the 1040 return they have not saved the money to pay the taxes. And they just keep getting farther and farther behind.