Episode 21: Understand and Be Prepared for Taxes as an Independent Contractor

Taxes may be the one thing that trips up and causes more problems for independent contractors in the gig economy.

We are used to having taxes withheld. We are used to something straight forward like income tax. We are used to deductions keeping our income taxes low.

And then the self employment tax throws a wrench in the works. Everything is different. Self employment tax is 15.3% of EVERY. DOLLAR. OF. YOUR. PROFIT. There are no deductions. 

The best piece of advice that I can give you on taxes is don't take advice on the internet. And don't take it from a blog or podcast, not even mine. None of this information is intended as advice, but more education about how taxes work. It's important that you understand some basic things about taxes for independent contractors like ourselves: 

Your taxes are based on your profits, not on your overall earnings. Keep good records of your expenses so you aren't paying more than you have toYou have income tax AND self employment tax. Self employment tax is our version of FICA (Social Security) and Medicare that you see on a W2 - only we pay double what we do as employees (because the employer pays half).

Understand the differences, understand how the taxes work, and get a tax pro to help you understand what you need to be tracking and saving.

We linked to another blog post that was posted earlier that went into a bit more detail on taxes.

Earlier episodes that help lay a foundation for this week include:
Episode 17: Understanding Profit and Loss
Episode 18: Understanding your real expenses
Episode 20: Be prepared for major tax and vehicle expenses

A complete list of future and past episodes for the series can be found here.