Sub-contractors come in many forms. It may be an electrician hired by a builder to complete wiring in a home, or a fitness instructor, hired by clubs to teach classes. The job may vary, but what stays the same is that sub-contractors aren’t part of a company’s payroll as employees, and need to approach their tax responsibilities a bit differently. Sub-contractors are given a Form 1099 to fill out during Tax Season, which means that being organized and keeping track of everything going in and coming out of your pocket when it comes to your business is crucial. Here are three ways to stay organized as a sub-contractor.
Set Money Aside for Taxes
The builder who has hired you or the club where you teach is going to cut you a check without taking taxes out, making it your responsibility to pay into the system, just like everyone else. This is where your estimated taxes come into play. During the year, there are four estimated tax deadlines. You’ll need to do some basic calculations as to what you have made during each quarter, what you can deduct and then come to an estimated amount in which to send to the IRS to meet your tax responsibility for that quarter. Keep in mind that if you don’t pay enough during a particular quarter, you may be charged a penalty. You’ll need to fill out Form 1040-ES and send this in with your estimated quarterly tax payment before each quarterly deadline. Most of the deadlines for 2018 have passed; however, there is one more, which is on January 15, 2019. Estimated tax deadlines, which require Form 1040-ES for 2019 are:
April 15th, 2019 (for Quarter 1)
June 15th, 2019 (for Quarter 2)
September 15th, 2019 (For Quarter 3)
January 15th, 2020 (For Quarter 4)
The best way to be sure that you’re prepared is by deducting the percentage of your tax responsibility (which will vary based on your income) and put that money into a separate account. That way, once the deadline draws near, you’ll have the money ready to send to the IRS. Too often, sub-contractors don’t set money aside in a separate account only to find that they don’t have enough money to meet their responsibility at the tax deadline.
Have a Filing System in Place
When you’re a sub-contractor, organization is key, and you’ll want to be able to prove what has come in and what has gone out of your business with ease. This is especially crucial if you get audited by the IRS. Being able to give an accurate representation of your expenses and what you’ve claimed as your deductibles is important. It’s a good idea to have a filing system. Keep a file for your checks that you’ve received and keep a file for any monies that have gone out the door to pay for necessary equipment for your business. It may also be in your favor to keep a spreadsheet of all of this as well, so that you have an extra layer of organization. Keeping receipts and invoices is a must when you’re a sub-contractor, so have a place to put these items. That way, you can refer back to them later.
Seek the Help of a Professional
If it’s your first go-around as a sub-contractor or you just want to have extra peace of mind, it may be a good idea to speak with a financial professional in order to learn about your tax responsibilities, independent contractor status and how to keep organized. In speaking with someone who knows the accounting industry, it’s an effective way to stay ahead of the tax game. If you’re unsure, just ask. Your financial professional will be happy to answer any of your questions.
As you can see, being a sub-contractor can be a different experience and staying organized is imperative, so that you can ensure that you’re meeting your tax responsibilities and going about your taxes properly.
The professionals at Bodine Perry are ready to help you get organized for Tax Season! Call (855) 851-8318 or visit www.bodineperry.com to get started with our team today.