The majority of the independent contractors will run their business as a limited liability company, S corporation, sole proprietorship, or partnership.With all these categories, your earnings are considered as a part of your income. Independent contractor is the most popular business structure in the United States as more than 73 percent of businessesare registered under this category. The establishment of these business structures is so simple and quick if you have not registered as a specified kind of business entity and the IRS labeled you as a sole proprietor by default.
If you are running your own business and alongside, you are an employee in another company, then you need to pay your business tax yourself and the employer will pay tax on your salary. Taxes work in the same way for both independent contractors and freelancers that can be calculated with the help of a business calculator.As far as you are self-employed, then you are considered as an owner of the business and classify under the same entity. Being an independent contractor, there are a lot of unique responsibilities attached to it where the main concern is tax. After understanding a few guidelines related to the independent contractor, it is easy for you to calculate the taxation through the independent contractor tax calculator.
Qualification to be considered as an independent contractor
The key point of an independent contractoris retaining the entire control of the work for that they are getting paid is going to be performed. By keeping all the guidelines on top of your head, there are different range of careers that proffer the ability to work as an independent contractor that includes the following.
- Freelance writers
- Lawn care providers
No matter how the business is structured, the status of the independent contractor can apply easily. As far as you are not categorized somewhere else as an employee, you are regarded as an independent contractor.
The payment and report of income of an independent contractor
Typically, employees get paid on various stable schedules whether it be weekly, monthly, or biweekly. Being an independent contractor, then it depends on you and the payer how the payment will be credited to you and when. For instance, the payer will send you mail of the cheque, do payment through wire transfer, or send payment directly to your bank.
Not all these payments are regarded as salary amount or wages when it comes to taxation because the vendor does not deduct taxes.That means no federal income taxes, Medicare taxes, or social security taxes are taken out before you get the money. Be mindful while deciding to receive the payment such as service like PayPal charge a significant sum of money.
If you work with different clients throughout the year,then you may get different copies of the form for taxation purposes. Payers need to have all these finished and labeledby the end of January. So, the taxation is a bit complicated and different in the case of an independent contractor.