How to File Taxes as an Independent Contractor

Whether you started driving for Uber last year or you’ve run a graphic design business out of your basement for a decade, paying the right amount in self-employment taxes is crucial. Fortunately, filing taxes as a self-employed individual isn’t as tricky as it sounds. Below, we walk you through the tax-filing process.

Tax form 1099-NEC (nonemployee compensation) lists the income you earned as an independent contractor working for a specific business. To file taxes correctly, you need to track down 1099 forms from businesses you worked with last year that paid you more than $600. (You still need to file taxes on all of your income, but only businesses that paid you over $600 are required to mail you a 1099-NEC.)

Starting with the 2020 tax season, Form 1099 comes in a few different flavors, though each variation serves the same purpose of recording and reporting your income. Most contractors should receive Form 1099-NEC (nonemployee compensation).

However, you could receive a 1099-K if you worked for a business that paid you at least $20,000 over a course of at least 200 individual payments.

Once you’ve gathered all your records, you can calculate your potential tax deductions. Many of these expenses can be deducted from your total taxable income, which lowers the amount of taxes you owe. Depending on the type of business you run, you should consider making deductions in the following categories:

• Home offices
• Educational materials and experiences, including seminars and conferences
• Gas expenses for business-related traveling
• Health insurance
• Internet and phone costs

Bear in mind that you need to make completely accurate deduction calculations—an educated guess isn’t good enough for the IRS. So how exactly do you do that? Read IRS Publication 535, which explains which expenses are (and aren’t) eligible for deductions. Publication 535 also tells you how to calculate deductions. Some types of exceptions just require you to tally receipts (which you’ll want to store for several years in case of an audit). Others, like home office deductions, require you to use a formula to write off the right deduction amount.

We recommend consulting with an accountant or tax advisor who can help you calculate deductions and help you in the event of an audit. Alternatively, tax-filing software includes instructions and information on how exactly to calculate your specific business deductions.

You’ve assembled all your documents and filled out all your forms. Now it’s finally time to file. The IRS explains all your filing options, including a list of IRS-approved electronic filing options, such as tax software companies like TurboTax and H&R Block. While you can print out all your tax forms and send them and your payment via mail, we (and the IRS) strongly recommend filing online instead. It’s faster, easier, and more secure.

As for paying your taxes, the IRS’s online payment portal gets the job done the quickest. If you’re using tax software, you should be able to pay through the software itself. And if you’re working with an accountant, they can help you make the payment.

Dealing with taxes after a bad year is the furthest thing from fun we can imagine, and no one can blame you for dreading the prospect. But if you stick to the four straightforward steps listed here, you should be able to get your taxes done with the minimum amount of stress possible. Good luck—and don’t forget to celebrate once you’ve finished filing.

Need to file taxes as part of an S Corporation or LLC, not as an independent contractor? Our guide to paying small-business taxes will help.

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