As a self-employed consultant, you must file Form 1040 or Form 1040-SR with Schedule C attached. This is where you will calculate your company's net profit or loss after deducting all applicable expenses. It is important to consult a tax lawyer to ensure that you are filing all the necessary forms. When you work as a consultant, you are considered to be self-employed.
Most companies treat consultants as independent contractors, meaning that they will pay you the full amount of your salary without any taxes withheld. This means that you are responsible for calculating and paying your own quarterly taxes. To understand the difference between 1099 and W-2 tax forms, here is a quick summary. When you are paid on a 1099 tax basis, you are considered an independent contractor.
This means that you are responsible for calculating and paying your own quarterly taxes, as well as being eligible for certain tax deductions and retirement plans for business owners. On the other hand, when you are paid on a W-2 tax basis, you are an employee of the company that pays you. Your taxes are automatically deducted from your paycheck and paid to the government through your registered employer. There are both advantages and disadvantages to each payment method. As a self-employed professional, you have a clear advantage when you receive a payment on a 1099 tax basis.
This gives you greater control over your tax situation, including opportunities to deduct business expenses, and allows you to save much more before taxes for retirement. This simplified scenario illustrates these significant tax savings. Before filing taxes as an independent consultant, it is important to make sure that you qualify as an independent consultant in the eyes of the Internal Revenue Service (IRS). The IRS requires self-employed individuals to file their business taxes along with their personal income taxes. To do this, it is important to have reliable financial reporting and use a CORE tax system to help manage all aspects of your business taxes. Most of the time, the Internal Revenue Service recommends that you make quarterly tax payments based on your estimated tax liability.
This can be intimidating for independent consultants, but it is a small price to pay for the freedom of being your own boss.