Freelance consultants run their own businesses that serve their clients. You are responsible for paying income taxes that range from 10 to 37% of your net earnings and a self-employment tax of 15.3% when you are self-employed. Any income you earn must be reported on your tax return. If you do consulting work for three or four companies, all of them will report their earnings to the IRS.
As such, you have to do your part. In addition, if you lose your Form 1099, you'll still have to file your taxes. Sales tax also doesn't apply to most services. Examples of services not subject to sales tax include capital improvements in real estate, health care, education, and personal and professional services.
See Transactions that are not subject to sales tax for more information. 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. As a freelancer, independent contractor, or consultant, you have to consider a variety of tax issues, including ways to lower your tax bill. Now that you know how to get into consulting, it's time to find out how taxes work for consultants.
While being a freelancer, consultant, or independent contractor provides a new set of tax issues to consider, it also offers you many new ways to cut your tax bill. While it can be complicated territory, learning to calculate and pay self-employment taxes for your consulting work is a small price to pay to have the freedom to be your own boss. For many of them, dealing with taxes on consulting fees is a headache, something that confuses and frustrates even the most knowledgeable about the numbers, along with the difficulty of some model contracts or work return templates. This may lower your income tax, but it doesn't lower your SE tax, since it doesn't reduce your SE income.
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