 | from William Perez
Some people are working in an independent capacity, sometimes because contract work is the only work that can be found. These "necessity entrepreneurs," as UCSC economist Fairlie calls them, have a much different tax situation than regular employees. This week we'll take a look at how contractors are taxed, and what they can do to keep their tax bill lower.
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In the Spotlight | Working as a Contractor
The most important thing contractors should understand is that two separate federal taxes will be imposed on their income, and how to keep both taxes as low as possible.
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| Paying Estimated Taxes
Contractors won't have any taxes withheld by their clients. That means contractors should set enough money aside and start making estimated tax payments. Figuring out how much estimated tax to pay can sometimes be as complicated, but a simple spreadsheet updated regularly can help you stay on top of your tax bill.
| Should You Incorporate?
New contractors often wonder if they need to establish a formal business structure, a process called incorporating a business. Strictly speaking, you don't need to incorporate. There are pros and cons of each type of business structure, and you'll want to make sure the structure you choose meets your needs.
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