How to Reduce Your Tax Bill as a 1099 Contractor

    Self-employed individuals often have a much higher tax burden than employees, making it difficult for them to get ahead. Fortunately, there are plenty of deductions freelancers can take advantage of, but you still need to do your due diligence to stay tax compliant.

    How 1099 contractors can reduce their tax bill?

    If you’re a freelancer who receives 1099 forms from their clients, you’re considered a “1099 contractor.” 

    While that means you have to pay 15.3% in taxes, you can reduce your bill by:

    1. Getting a rough idea of what you’ll owe on your tax

    Independent contractors have to save 25% to 30% of their income for tax purposes, but they may have to keep even more if they make over $50,000 a year. Since most contractors don’t have a consistent wage, you need to estimate how much you’ll make by the end of the year.

    To understand your total tax burden, use a free tool like KeeperTax’s 1099 tax calculator. That way, you won’t have to guess how much you need to put away or fiddle with complicated math. Plus, you won’t have to worry about missing your tax payments, which could be expensive.

    2. Figure out immediately if you need to pay quarterly taxes 

    If you owe or expect to owe $1,000 or more in required quarterly pay estimates, then you have to pay quarterly taxes. The IRS won’t warn you when you’re expected to switch from yearly to quarterly until you’re audited or have to pay a late fee, so it’s best to stay ahead. 

    Your quarterly estimates account for 1/4 of your last year’s total tax burden. For example, if you owed $12,000 last year, you would have to pay $3,000 before one of the estimated tax deadlines. You’ll avoid penalty fees if you’re short on your taxes but not on the estimates. 

    3. Start tracking vehicle, office, and travel business expenses

    Some deductions are harder to track after the fact or are a pain to prove. For example, you need to track your business-based vehicle expenses based on standard mileage rates, or you risk getting this information wrong. If you’re audited, you could be charged with tax fraud.

    Remember to track your home office or remote expenses, like rent, utilities, phone, and internet, business meals and travel deductions, and tax-deductible vehicle usage ahead of time. Remember that you can only deduct certain costs, like rent or internet, up to a specific amount.

    4. Deduct your premiums and pay into your retirement

    If you purchased a loan or incurred interest on your credit cards, you could deduct them. If you bought a home, liability, or other insurance to protect your startup, you could deduct these premiums, too. You may even be able to deduct your health insurance premiums.

    Speaking of health, you can protect your health and well-being well into retirement by paying into your IRA or 401(k) plan. Independent contractors don’t have to pay taxes on the money they deposit into their accounts. This could slash your tax burden by 5% to 15%.

    5. Become an s corporation to pay fewer taxes overtime 

    Certain businesses may qualify for a business income deduction, which lets you deduct as much as 20% of qualified business income. However, you must form a pass-through entity, either a sole proprietorship, LLC, partnership, or S-Corp. You’re likely a sole proprietor.

    But if you form an S-Corp, you can be taxed as a corporate entity on income that stays in your startup. For example, if you take out $100,000 as income but keep the rest of your income locked into your business, you’ll only pay self-employment tax on the income you withdrew.



    RELATED ARTICLES

    Monetize Magnet

    Monetize Magnet Review – The Best Crypto and Forex CPA Network

    In today's world, cryptocurrency has reached new heights, expanding continuously and providing online earning opportunities...
    Business Cards

    Unlocking the Power of Business Cards: Networking Essentials for Success

      Table of Contents Introduction The Evolution of Business Cards Why Business Cards Still Matter Designing...
    Lab-Grown Diamonds

    The Science Behind Lab-Grown Diamonds: How They’re Made and Why They Shine Bright

    Introduction: Welcome to the dazzling world of lab-grown diamonds, where science meets sparkle! If you've ever...
    Payback LTD

    Payback LTD Review (Payback-ltd.com) – Find out Why This Fund Recovery Service Provider

    Payback LTD Review Losing your hard-earned money in what seemed like a good opportunity can be...
    IT Providers

    How Do Outsourced IT Providers Fuel Business Growth?

    In an era where technology seamlessly integrates into every facet of a business, maintaining an...
    Financial Investments

    Understanding Risk Management Strategies for Financial Investments

    In the ever-evolving landscape of finance, understanding and effectively managing risks associated with investments is...
    MBA Programme

    Dual Degree MBA Programme: A Unique Educational Opportunity

    In today's world, professional success requires more than traditional management skills. It calls for a...
    women ipl

    Women IPL Sensation Shreyanka Patil: From Fan to Champion

    In a cricketing universe usually ruled by dudes, Shreyanka Patil, the rookie wonder for Royal...
    Monetize Magnet

    Monetize Magnet Review – The Best Crypto and Forex CPA Network

    In today's world, cryptocurrency has reached new heights, expanding continuously and providing online earning opportunities...
    celsius drink

    Celsius Drink – What Is It and How Safe Is It?

    These days, you must come across your social media feeds with an advertisement for a...
    low porosity hair

    Low Porosity Hair Problem? Slay Locks with Moisture Miracle

    Have you ever experienced your hair being stubbornly resistant to moisture? That's low porosity hair...