What are some of the positives and negatives, tax-wise, of being an independent contractor?
Positives: • It qualifies you for various deductions as well as special saving options. • It can reduce the cost of doing business (i.e. payroll costs, office space, office equipment) • It gives you the option of turning a donation, which sometimes has limited tax benefits, into a business expense (advertising), which often has a greater tax benefit. • You do not have money taken out of each check for taxes. Negatives: • If the work ends you do not receive unemployment. • There is more to keep track of (i.e. receipts, mileage). • The forms that need to be filled out at tax time can be more extensive or complicated and are more confusing for many. • Many work related purchases need to be depreciated (see below). • Since money is not taken out of every check, you must budget money for taxes. • You are responsible for paying 15.3% self-employment tax. This breaks down into 12.4% social security tax [for the first $87,900 you earned in 2004] and 2.9% Medicare tax. • After your first year o
