When you're self-employed, you must report any income you earn on your tax return. This includes consulting work for three or four companies, all of which will report their earnings to the IRS. As such, you must do your part and file your taxes, even if you lose your Form 1099. Consultants should also be aware of the self-employment taxes levied on their income. When you're self-employed, you are responsible for the full amount of Social Security and Medicare taxes, whereas when you work as an employee, your employer pays half of this amount.
These taxes are charged in addition to any income taxes you may have to pay. The Internal Revenue Service (IRS) usually recommends that you make quarterly tax payments based on your estimated tax liability. Self-employed workers who run their own businesses must manage their own taxes. However, Social Security tax is not applicable to earnings that exceed certain amounts per year, but all income is subject to Medicare's self-employment tax.
As such, the IRS requires them to file and file their business taxes along with their personal income taxes. Almost everything a freelance consultant buys for their business is tax-deductible as long as it's ordinary and necessary and the cost is reasonable. To file taxes as an independent consultant, you must qualify as an independent consultant in the eyes of the IRS. The CORE tax system can help you control and manage all aspects of your business taxes in addition to reliable financial reporting.
Therefore, independent consultants must take much more hands on the processes of planning, managing and paying taxes. This means that you'll add it to any other income you earned during the year and then pay taxes on that amount at your marginal tax rate. While tax collection is a hassle for almost all Americans, it can be particularly intimidating for independent consultants. Your share is withheld from your paychecks when employed, but when self-employed, you must pay it in full - although you can deduct half of your self-employment taxes from your tax liability.