What’s an Independent Contractor?

An independent contractor is not a traditional employee. They have more freedom and flexibility to set their own schedules, and they often work remotely.

Independent contractors are generally self-employed workers who are paid for their work directly by the company that hires them.

In most cases, an independent contractor is hired for a specific job or project rather than on a full-time basis. An independent contractor typically provides his/her own tools, supplies and services needed for their jobs.

Understanding Independent Contractors

An independent contractor is not the same thing as an employee. An employee is someone who works for a company and receives a paycheck from them every pay period. In contrast, independent contractors typically are able to set their own hours and choose which projects they want to take on. They also have more freedom in terms of what tools they can use and how they do their work.

How are Independent Contractors Taxed?

As an independent contractor, you are responsible for calculating and paying your own taxes, as well as keeping track of all income received from clients. In the United States, independent contractors are considered sole proprietors or single-member limited liability companies (LLCs).

They must report all their income and expenses on Schedule C of Form 1040 or Schedule E if they have profits or losses from rental properties. Also, they must submit self-employment taxes to the IRS, usually every quarter, using Form 1040-ES.5. Independent contractors do not necessarily pay taxes on their gross earnings. 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 (Source: Investopedia).

Pros and Cons of Being an Independent Contractor

Being an independent contractor has its ups and downs. We're going to take a look at both sides of the coin, so you can make the best decision for your personal situation.

The Pros:

• Freedom: You can work when you want, where you want, and with whom you want. Many independent contractors find this appealing because it gives them the ability to set their own hours and work from home.
• Independence: Contractors don't have to answer to a boss or follow rules about how they should dress or what time they should come into the office. They get to make all of those decisions for themselves, which can be empowering for some people.
• Flexibility: Contractors have the opportunity to take on a variety of projects, which means they have more opportunities for growth in their careers than someone who works full time at one company might have.

The Cons:

• Risks: If an independent contractor isn't successful at finding clients, then they may not be able to bring in enough income to pay their bills each month. This could lead to financial hardship if your client base doesn't grow as quickly as you hoped it would!
• Benefits: Contractors typically do not have access to employee benefits, such as healthcare coverage or retirement plans.