Contact UsWhat are the estimated tax and tax return filing requirements for taxpayers earning income as an independent contractor and should I incorporate or establish a Limited Liability Company for that independent contractor activity?
TaxConnections Members... Answer This Question
Want To be One of Our Tax Experts? Register Here
Tax Professional Answers
William Keats
As an independent contractor (IC), a tax return must be filed (using Schedule C) if your net profit is over $400. You will also be required to pay FICA and Medicare taxes on your net profit. Currently, that rate is 15.3%. If tax liability is over $1000. or is anticipated to be that or more, you should be making quarterly estimated tax payments.
Establishing an LLC as a sole proprietor may reduce your liability should you be sued, but it does not save taxes. If you set up an S-Corp you will be required to take a salary if the company is profitable. (Some start-up companies may not have enough capital to take salaries or hire employees.). Any profit is carried over from your corporation to your personal return on the K-1.
If you go the S-Corp route, be sure to get liability insurance.
Leave a Comment
552 weeks ago
Establishing an LLC as a sole proprietor may reduce your liability should you be sued, but it does not save taxes. If you set up an S-Corp you will be required to take a salary if the company is profitable. (Some start-up companies may not have enough capital to take salaries or hire employees.). Any profit is carried over from your corporation to your personal return on the K-1.
If you go the S-Corp route, be sure to get liability insurance.