Being an independent contractor rather than an employee has both benefits and drawbacks. Not all individuals can succeed in running a sort of their own business because the alleged independence from the employer, but in fact in turn into dependence from customers, their needs and perspectives.
When making a decision to change the status to “an independent contractor” there are a lot of circumstances and requirements to make sure you are aware of.
The first and foremost is that an independent contractor has to take care of the tax reporting and making obligatory payments on their own. It is especially important to follow the procedure of documenting the services or goods provided to the contracting parties. The primary document to complete is the contract or agreement. Upon the fulfillment of the agreed conditions and terms it is advisable for the contractor to request the statement of acceptance to prevent any misunderstanding or complaints from the other side.
The contracting party to protect themselves from troubles with IRS because of inappropriate or incorrect reporting of the income paid to the contractor should request them to provide a completed free w9 form at the initial stage of cooperation. The fillable w-9 will bear the contractor’s full legal name and the taxpayer identification number. The payor will use this information to fill out form 1099-MISC that is to be delivered to the IRS and to the contractor. The contractor will need the copy of 1099-MISC to be able to report their miscellaneous income correctly. The only crucial exception to filing W-9 and 1099-MISC forms is the contractor's earnings not exceeding the rate of $600.
Unlike hired employees, independent contractors should take care not only of calculating the income and the taxes, but also pay self-employment taxes as Social Security and Medicare taxes.