The New Year is here, which means it’s time to take a deep breath, get yourself organized, and plan for the year ahead. If you supplemented your income with contract work in 2018, you’re in good company. Twenty percent of people in the US are already self employed in some capacity and that number is said to increase to 50% in a decade. But keep in mind—that beloved side gig of yours will affect the way you handle your taxes come April.
So, whether you’re thinking about supplementing your income this year, or have already made the leap into independent contract work, here are a few tips to help you get organized and feel fully prepared for tax season.
Get Ready for a Few Ch-Ch-Changes
If you’ve never worked as an independent contractor before, be prepared for a few changes this tax season. Here’s the deal—any money you make as an independent contractor is not considered a salary or a wage. Instead, it’s considered business income, and you’ll be responsible for all estimated tax payments to the IRS. Don’t be nervous. It’s easier than you think.
As a Luna therapist, you control your own schedule and decide the manner in which you do your work. Therefore, you are an independent contractor. You can, of course, be both an independent contractor and an employee. Let’s say, for example, you work full time at a hospital as a physical therapist but do a little PT work on the side with Luna. You’ll need to report your earnings to the IRS, so don’t forget to keep track of your self employment income!
Know What To Expect in Advance
Instead of receiving a W-2 in January (unless you also are an employee at a clinic for example, in which case, you will), you’ll receive a 1099-MISC form showing the total amount earned from each company that you worked with that year. Luna, for example. If you were paid less than $600 from any company, you won’t receive a 1099 from them, but you’ll still need to include that income on your business tax return. The government needs to know all. No getting away from that.
Because you aren’t an employee of a business as an independent contractor, your paychecks won’t have any federal income tax withholdings taken out of them. Your business tax return is where you'll pay both federal and state income tax on the payments you’ve received for your work as an independent contractor. You’ll also owe self employment tax—the taxes for social security and Medicare (half of which are typically covered by an employer). Of course, the upside is that you’ll be able to write off your business expenses. Cha-ching!
Start Planning Your Deductions
When you work as an independent contractor, you need to keep flawless records of any business expenses that you’ve paid over the year. Here are a few potential tax write offs for Luna therapists that will get your wheels turning about what might qualify as a business expense. Just remember—if you want to write off a certain expense, it must have a specific business purpose. So, if you had to spend $550 on a portable treatment table, or $200 on educational physical therapy books, you can and should write those off as a business expenses. Just make sure to save your receipt in case of an audit down the road.
If you’re stressing over tax season, don’t fret! You still have plenty of time to get prepared. Be sure to check back in on the blog regularly for more helpful tax season tips.