From Simply Hired Blog, Brian DeBelle outlines the benefits and drawbacks of being an independent contractor. “Contractors can benefit from much greater tax planning and pension planning options, higher salaries and increased flexibility. While legislation includes numerous tax codes to offset many of the expenses associated with working for yourself, understanding what deductions to take on your tax … While your employer was required to withhold federal income, Social Security, and Medicare taxes from your payroll, it’s up to you to make these payments yourself as an independent professional. Consider paying slightly more to avoid underpayment. As a self-employed contractor, you don’t pay taxes on every dollar you earn; you pay taxes on the amount you’ve earned minus the costs of running your business. There’s a draw to being your own boss and setting your own hours and rates. 1. You need an Australian business number (ABN), and you need to pay tax and super. But the fact remains that there are a lot of benefits to hiring independent contractors instead of employees. For example, no federal or state taxes are withheld from your paychecks, as they must be for employees. The ATO has a simple rule that if you are away for more than 21 days then the overnight travelling allowance does not apply but the living away from home allowance may apply. If you overestimate, you’ll likely get a refund, and if you choose not to pay quarterly taxes you may be subject to penalties. Contractors will never enjoy some of the benefits that employees have the ability to take advantage of. If you work as an independent contractor, sole proprietor, or run your own business such as an LLC or partnership, you are required to file an annual tax return as well as pay estimated taxes on a quarterly basis. Benefits of being a contractor. Here’s an example of the benefits for you: In this scenario, the independent contractor makes $75,000, so let’s see what the difference is between being treated as sole-proprietor VS an S-corp. Keep in mind that the self-employment taxes = 15.3%. You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Tax Advantages for Self-Employed Contractors. A contractor can be paid whatever rate is agreed to. © Australian Taxation Office for the Commonwealth of Australia. Being able to easily refer to your income records will help to streamline your tax filing process and make it easier to estimate the taxes you will owe for the following year. You may have to pay the cost to fix anything you damage in the course of your work. You don’t have to deal with it or even think too much about it. The first thing that springs to mind is the financial benefits, some of these are: An average contractor rate can easily be double that of a permanent employee, or even more. Some people consider it a benefit that the payments you receive as an independent contractor don't have any federal or state income tax withheld, or … We are committed to providing you with accurate, consistent and clear information to help you understand your rights and entitlements and meet your obligations. You may also have to pay the costs incurred by someone else if you cause an accident on someone else's property. : Federal Court of Appeal 1392644 Ontario Inc. O/A Connor Homes vs Minister of National Revenue, and … The employer deducts income tax from your paycheck and you get a T4 for your taxes. If you are familiar with the process, take a look at your tax returns from last year to get an idea of what you should be paying quarterly. 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