How to file taxes as an independent contractor

How do I file my taxes if I'm an independent contractor? Meaning you get a 1099-NEC or 1099-miscellaneous or any other sort of income that isn't coming across as a W-2. You're basically an independent contractor. You know, We just did a video on how do you file, like what documents do I need in general? And the answer is all the documents. You need all the documents that are tied to your Social Security number because the IRS gets that information. So you got to report it yourself. When it comes to being an independent contractor, I'm going to try my best to help you if you're looking to do this yourself. But look, I know it may seem like I'm biased, but this is an area, if you're an independent contractor, you need to use a professional. The majority of the tax code, the part that is up for interpretation, if you will, that's why there's court cases on disagreements of opinions, relies heavily on independent contractor type of income. If you're only W-2 income, maybe you have a mortgage interest, your situation's really black and white. Independent contractor, not super black and white. First challenge you have, what entity should you be choosing? Do I file as an LLC? Do I file on my Schedule C, which is my personal return? Do I file a separate return on an S corporation? Do I file a partnership? I can't answer that question for you right now in a general video. We've done lots of videos, so please check out our previous content. We do go into a lot of education on what entity makes the most sense. But for the sake of how do you file your taxes as an independent contractor, for the scope of this current video, You need to choose. We do strongly encourage you to avoid having the status of sole proprietor, so having an LLC set up is at least a good minimum step. And if you need help with that, we have a great connection with a company called Prime Corporate Services. It's the least expensive option you'll find to set up an entity. Let us know, we'll get you the contact info. So, you— once you choose the right entity, Then based on that, you're going to file your independent contractor activity the way that entity needs to be filed. If you're a single-member LLC, that gets filed on a Schedule C. If you have more than one member in your LLC, that gets filed as a partnership return. And if you make an election on either of those situations, you could technically need to file an S corporation. This situation alone Can save you taxes or hurt you, which is why we recommend talking to a professional about the type of income you have so that you make the right choice, because the wrong choice will cost you, and we want to keep money in your pocket. We don't want to just willingly give it to the IRS simply because, you know, someone didn't take the time to just get some advice, and maybe you need to pay for that advice, but usually— The right entity choice can save you thousands and thousands of dollars in taxes. Okay, so right entity choice leads to where you file your independent contractor activity. Assuming you've figured that out and you're still wanting to do this yourself, you then need to find a tax software that has those forms that you need in order to file. Meaning, like, TurboTax is a really big company, but there's other companies— TaxSlayer, TaxCut— like lots of— there's so many softwares out there. Many softwares, especially the ones that are advertised like free, free, free, free, free, come join us for free— if you ever pay attention to the little, uh, little fine print at the bottom of your commercial, they're basically telling you like, you're not going to qualify for this, but we've, we've duped you, so thanks for using our software. And they don't tell you that you're going to have to pay money to use the software and file your return until you've done all the work already. So please be aware, all those companies market, in my opinion, in a very sleazy way. And don't get me wrong, I've seen some of the commercials. I'm like, dang, that was a good commercial, but also completely dishonest. So is it a good commercial? You be the judge. So let's assume you're still using a software. The software usually comes with the forms that are available. So if I just have W-2 income, most softwares are going to be fine with that. Not all tax softwares give you the option to file a Schedule C. Sometimes that's a separate, like, it's like an upgrade for the software. And then on top of that, if I have to file a separate business return, you got to make sure you find a software that offers that as an option. Does it let you file a partnership return? Does it let you file an S corp return? If you have a C corp for some weird reason, file— like, is it going to let you file the C corp tax return? Because they're completely separate forms. So keep all that in mind. Don't be duped. Do your research if you're doing this yourself. Pick the right tax software. Again, I know you think I'm biased, but as a professional CPA, we save our clients more money in taxes than what they pay us in fees. So if you find someone good, especially with independent contractor income, there's a lot of opportunity to make sure someone's strategizing the right way. Not a ton of strategies with just W-2 income. Independent contractor income, thousands, like almost— The whole tax code is written for you. You get to use the same rules as large companies. Okay, so then you want to make sure, assuming we've done that whole rabbit hole, right, right entity, I know where that entity needs to be filed, and I picked the right software. Great. As you can see, it's a big undertaking, but hey, you want to save some money. Probably going to overpay in taxes, but I want to serve you. I'm trying to give you the information you can with also A dose of reality. You need to track your business income. As an independent contractor, not all of your income may be reported to you on some sort of form. Again, that's likely going to be a 1099-NEC or a 1099-MISC, but it's possible you received income that's not reported there. If you're audited, the IRS is going to look at your bank accounts. They're going to look at your deposits. So you're going to want to make sure that your business income matches the business deposits. So you track that, and then you track your deductions and all the expenses. Deductions, expenses, synonymous words. How do you do that? Look, if you're not— it's not a super active independent contractor activity, we have clients who do that just with an Excel file. If, like, it's your full-time gig and there's a decent amount of transactions, QuickBooks Online is a great option. We're not a fan of some of the other softwares. There's a lot out there, but pick the one that works for you. QuickBooks Online is the one that we recommend for our clients because it's pretty user-friendly. But again, with a dose of reality, user-friendly can lead to someone who doesn't have an accounting background doing their books, thinking they're doing it the right way because QuickBooks Online makes it seem so easy, but they categorize expenses the wrong way. And therefore you're not going to get the right tax deductions if you don't categorize your expenses the right way. But regardless, if you're an independent contractor, you are responsible at the end of the day for tracking your income and your expenses. Even if you're paying a bookkeeper and the IRS audits you, they're not going to come after the bookkeeper. They're going to come after you. So you would hope a good bookkeeping Service will help you get the right tracking of your income and expenses, but it's still your responsibility. You can't abdicate that. Now, it's the same thing we tell our clients. Like, we're going to do a great job for you. We're going to give you the right information, but it's still, at the end of the day, this is your set of books. You are the one ultimately responsible for them. Okay, so I've tracked my income. I track my expenses. Through that process then, I can now create a profit and loss statement, and sometimes I need to look at a balance sheet as well. If I bought equipment, I'm going to need to look at my balance sheet to make sure I'm maximizing all the tax savings possible. Put that information into the tax software and you end up with some taxable income. So that is a super generic overview of how do you file your taxes as an independent contractor. But there's a lot involved, right? Not nearly as black and white as I get a W-2, I plug it into the lowest version of most tax softwares and I'm good. Independent contractor type of income, way more complicated. A lot more things available to you though. So take advantage of that. Use the complexity to help you keep money in your pocket. Because remember, the IRS, they don't care. They get satisfaction out of ruining people's life. I think, what does the phrase go? They're not happy until you're not happy. Well, we want to protect people as much as possible from the bullying tactics of the IRS. And so if you have any questions about anything I've shared, please reach out to us. We would love to help you keep more money in your pocket. Thanks again. The IRS sucks.