Alright, help me out here.

Hypothetically, if someone were to become an independent contractor, what tax type paper work (and other paper work) would they need to fill out???

Quote:Originally posted by kristinafh
Alright, help me out here.

Hypothetically, if someone were to become an independent contractor, what tax type paper work (and other paper work) would they need to fill out???

Schedule SE - self-employment tax (if you make over $400, I think). This is nasty -- you're paying double the social security tax you would as an employee.

Schedule C -- income and expenses from business.

The Business Use of Your Home form, if you're going to claim that.

The form for deducting automobile mileage, if that applies.

And you have to file the long form of the 1040.

I think that's about it for the tax stuff, if you're doing something like consulting or freelance writing (as opposed to running a store or something like that).

Some localities require a business license and have you pay extra taxes as well. It might be best to check with your local small business association.

Amy

Quote:Originally posted by kristinafh
Alright, help me out here.

Hypothetically, if someone were to become an independent contractor, what tax type paper work (and other paper work) would they need to fill out???

Hypothetically, they may want to incorporate if there is even the slightest chance that they will take on partners or hire people. You could set it up to trade as so (just for fun, we'll pick a name at random) Kristina Frazier-Henry, Inc. t/a Kristina Frazier-Henry.

It all depends on industry, how you're planning on running thing s(e.g., entering into contracts, buying equipment, etc.) Amy made an excellent suggestion. Another is to contact your school, particularly if its local. Many still offer alumni services you can take advantage of.

A lot depends on the scale of what you're doing. If you get a business license, you'll have more credibility and can get a business checking account and apply for loans and so on, but if what you're doing is something like freelance writing from your home, IMO you don't need to bother with that. It depends on if you need that kind of credibility, which depends on what the people you're dealing with expect.

I would also be cautious about incorporating, even if you are doing something where you're leasing space and/or hiring a few people, etc. IMO, incorporation isn't necessary or helpful for most small businesses. And if you do decide to incorporate, I would suggest doing it through a lawyer, rather than through one of those places that you see advertise -- they tend not to be exactly 100% straightforward.

Just my opinion. And as everyone said, there's lots of helpful info available through the small business administration and local colleges. But I've been doing freelance writing, and I've kept it simple -- no business license, no nuthin', just the extra tax forms (and, alas, the extra tax!).

Been there, done that for 10 years.

I don't miss filing quarterly tax estimates, , and having to scrape up cash for same, I don't miss having to pay for my own health insurance, I don't miss having to pay both sides of FICA.

I do miss the groovy deductions that you can come up with as an independent contractor though.

You must have a good accountant that you are willing to pay to give you advice to get set up properly, and then to help you along the way. Don't plan on doing your taxes yourself, or having your husband or your cousin do them. (A good accountant, in my book, is one who is aggressive without being reckless.)

Andrea

One way you can limit your liability without forming a corporation is by forming an LLC (limited liability company.)

In Arkansas, this cost me $50 initially and $25 a year thereafter.

There are many reasons why individuals would want to limit their liability. For me, it's because I run a newspaper and don't want to be sued, even though I can't imagine printing anything that anyone would remotely want to sue me over

When I was growing up, I had a friend whose Dad was S/E. She said that all the family assets were in her Mom's name, because they were so afraid that he might go bankrupt or get sued and lose everything they owned.

For $25 a year, an LLC solves that problem.

(There are books about forming LLC's, but I just used the forms provided by the Arkansas Secretary of State--actually I was just transferring the LLC to my name from someone else's, but she had read the book and found the pre-fab form was fine for her purposes.)

$50 bucks for an LLC? Sweet. California charges $1600 or so a year (same as corporate franchise tax). You would probably want to do an LLC rather than a corporation.

I have been doing Schedule C's for 8 years, plus 2 for my wife. You also have to do the full depreciation form if you have books and equipment, so you can take the 179 writeoff. If you really make money at this, you will probably want to see a tax professional. I did mine on my own for years, but have recently started consulting one, and it saved me a ton.