Independent contractors overview

In general, an individual or business is considered an independent contractor if they provide products or services under either a written contract or verbal agreement. You can also call them freelancers as they are not paid on a regular basis unlike full time employees. And while most of the independent contractors choose sole-proprietorship, others opt to establish their own LLC or S-Corp.

If you’re self-employed and are paying out of pocket for all your business expenses, it’s important that you keep records for and deduct as many of them as possible on your taxes. According to U.S. labor law, independent contractors are not employees—they are self-employed and do work for clients on a contract basis. If you do work as an independent contractor, you are technically working for yourself. Working with a professional accountant and bookkeeper will help to eliminate much of the stress that comes from being a business owner and helps you stay on track financially. In addition, keeping your books organized will put you in better position if you ever apply for a business loan. You’ll get monthly financial reports and can rest easy knowing the books are taken care of.

Processing Form 945 for a client with independent contractors

Whether the work is part of the  core business activities is a determining factor in some states like California, for the IRS it is only one factor. Therefore, in California an accounting firm hiring an accountant to work for clients is appropriately classified as an employee. Elsewhere, an accountant may be able to work for an accounting firm and be an independent contractor depending on other factors. For a non-accounting firm such as a therapy private practice, coaching business, or small legal firm, an accountant could be an employee or an independent contractor.

• On the other hand, if you purchase illustrations, fonts, or stock images, the correct category for them would be “Media Purchases.” When buying items like beads, categorize them depending on how you use them.
• We then combine all of your information and prepare all necessary forms and schedules.
• The U.S. Department of Labor website explains why the government takes this so seriously.
• Behavioral control It does not matter whether the business exercises control over the worker, it matters if they have the ability to exercise control.
• You will get paid for the projects you work on, do taxes on your own, and work when you want to work.
• Our part-time CFOs, take the data from your books, employ financial analysis, to project your future sales.
• But an accounting software is highly recommended if you are an independent contractor.
• Intuit’s QuickBooks is the best-known accounting app for good reason.

Before classifying a worker, consider how much control you have over a worker in the three above categories. IRS Form W-9 is used to report nonemployee compensation of $600 or more. At the end of the year, use Form W-9 to generate Form 1099-NEC, Nonemployee Compensation, for your contractors. The biggest https://www.bookstime.com/articles/accountant-for-independent-contractors downside to Bench is that if you need the Premium plan, you’ll have to sign an annual contract, so if you’re not happy with the plan, you’re on the hook for an entire year. Several customers on third-party review sites report problems reaching customer service or receiving a response to their problems.

The 7 Best Accounting Apps for Independent Contractors in 2023

If you’re looking for a good template contract for an independent contractor agreement, the plain contract is a good place to start. If you’re doing work for someone, you’re not on their payroll, and you signed a contract with them, you’re probably an independent contractor. Most people who call themselves “freelancers” are considered to be independent contractors by the IRS—the two terms are basically interchangeable. The less-expensive Essential plan offers monthly bookkeeping and a dedicated bookkeeping team while the more expensive Premium plan also offers income tax support. Independent contractors need to be thinking of bank account reconciliation.

Applicable business expenses can reduce their overall tax obligation. The difference between gross earnings and business expenses is the net income, on which taxes are due. However, whether these people are independent contractors or employees depends on the facts in each case. The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.