If you attempt to reconcile your books on your own, it can be a monumental task. Using accounting software like Zero, Wave, or Freshbooks, will allow you to reconcile your bank accounts quickly. Independent contractors need to be thinking of bank account reconciliation. The practice of reconciliation will help you ensure that every transaction matches your accounts. It is also a great way to prepare yourself for tax season. However, it is highly beneficial to create your Employer ID Number. There are many tax benefits and saving that come along with having a business entity.

Most people who call themselves “freelancers” are considered to be independent contractors by the IRS—the two terms are basically interchangeable. In the examples of Gilbert and Walter, the Board ruled that they were independent contractor. The CPA firm was interested only in the end results they achieved. They were not reimbursed for out-of-pocket expenses and were not given a company car or a mileage allowance.

Limited Liability Company

This is defined as the right to exercise control over the worker’s manner, mode, methods, and means of doing his or her work. Whether the control is actually exercised is of secondary importance (See Empire Star Mines Company, Ltd. v. California Employment Commission , 28 Cal. 2d 33). It states that an “employee” means a resident or a non-resident individual who receives remuneration for services performed within this state, including an officer of a corporation. Many new independent contractors will start out doing bookkeeping themselves.

This can take your annual income and improve it significantly. As a contractor, keeping your accounting transparent will also allow you to see your income and expenses more clearly. The clarity in financials will allow you to make smart decisions on the growth of your company. It is best practice to reach out to a CPA for advice when choosing what accounting method will work best for your independent contracting business.

How to become an independent contractor

Work with a professional before selecting an accounting method for your contracting or construction business. In fact not providing a 1099 accountant for independent contractor on time could lead to penalties ranging from 50 to a hundred dollars per 1099 with a maximum of $547,000 a year for your small business.

Consider how much right the worker has to control the economic aspects of their job. Independent contractors are self-employed so they have business risk. They have to generate enough revenue to cover expenses to avoid a loss. Whereas, employees are usually paid a relatively predictable or consistent amount and don’t incur the kind of expenses that could result in a loss because they are not operating a business. This section coversIRS guidanceto help business owners determine if their worker is an independent contractor or an employee.

Is it better to be an employee or an independent contractor?

Our company worked with several independent contractors in different service realms. We understand the pain points that independent contractors have and how to solve them. The fact the person for whom the services are performed furnishes significant tools, materials and other equipment tends to show the existence of an employer-employee relationship. A requirement that the worker submit regular or written reports to the person or persons for whom the services are performed indicates a certain degree of control.

One of the main reasons for this is to make your tax reporting a lot easier and get you back to work as quickly as possible. As an independent contractor, you are responsible for paying quarterly income taxes–which can be an arduous process if you don’t know what you’re doing.