taxes

Tax Benefits of Independent Contractors

It is easy to get confused about the main difference between an employee and an independent contractor. Workers must understand that each type of work has its merits and demerits. On the same note, your personality can get better-suited to only one style of working over the other.

When you are earning a living as an independent contractor, it offers you more flexibility and control over your job. Also, you will take advantage of some tax benefits that are not available to employees. Visit the ir35 calculator site to understand the tax benefits that you will get. In our post today, we are going to share the following tax benefits for independent contractors.

No Withholding

When you are an independent contractor, there are a lot of tax benefits that will help you. When you receive payments from each of your clients, note that it is not subjected to state and federal tax withholding as employee paychecks. Even if you must pay taxes, you will only do it by making up to four estimated tax payments over a given year. In doing this, it offers you more control and also allows you to avoid overpaying your taxes since you will have to calculate each of your payment on your cumulative contractor earnings.

Contractor Deductions

income taxMost of the taxpayers who are employees are eligible to deduct their work-related expenses. However, the IRS places various limitations on the amount that they deduct. Therefore, if you are working as an independent contractor, you have an opportunity to deduct all of your business expenses directly from your earnings. Note that your deductions will include different fees, including your car and the cost of supplies.

Accrual Method Accounting

When you are managing a business that is offering services as an independent contractor, you will have an opportunity to use accrual methods of accounting for your contractor’s expenses and earnings. The main tax benefit of this method is that you will claim your deductions during the period when you become liable for their payments.

Self-Employment Tax Implications

As an independent contractor, you have an opportunity or obligation to pay for your self-employment taxes apart from your income tax. It is essential to understand that these taxes cover the same medical and social security taxes that your employers withhold from the paychecks. The benefit of making your self-employment tax by yourself will enable you to claim deductions as a form of adjustment to your income for half of your payments.

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Can You Get a Loan against Your Tax Refund

You can quickly get a loan for your tax refund. This loan is offered by the tax preparation company you pick. These companies do not offer you a loan directly. Rather they partner with banks that can lend you income tax loans. After they receive the tax refund, part of the money goes to pay the loan. You will find these loans quite useful if you require cash immediately rather than waiting until you get your tax refund. Ideally, tax refunds are loans and can be advertised as not having any fees or interest, but it is advisable to read the details.

Tax Advance Refund

loan approvedThis can be defined as a short-term loan that is free to allow you to access your tax refund sooner. Ideally, the amount of money you get is based on the expected tax refund. You need to file your taxes by the same tax-prep company ahead of the refund deadline. Usually, you may get the money the same day or wait for 24 hours. However, some tax returns take quite long to review, and the money is sent within three weeks.

How to Qualify

If you are expecting to get a tax refund from IRS, then you can apply. Depending on the expected tax refund amount, there is a minimum loan amount to borrow. This ranges from $100 to $500, but it is dependent on the tax preparation company you choose.

Will It Cost You Money?

income loanMost tax preparation companies will provide you with a tax loan without fees or interest. However, they are likely to charge the preparation feels to process the loan or file your taxes. Thus, such costs will reduce your expected tax refunds. There is free tax software that can help you file taxes online. Moreover, your tax refund loan is likely to be issued on a debit card. Thus, the card may have its associated fees. Sometimes you may get a higher loan than the tax refund because of a miscalculation by the tax preparation company.

Effect On Credit Score

The tax advance loan may affect your credit score depending on the bank that provides you with the loan. If a hard inquiry is made, then your credit score will be affected. However, if the bank makes only a soft investigation of the credit report, then your credit rating will not be changed.