I am considering doing contract work, what is next?

An LLC is a separate legal entity, but the IRS doesn’t consider it a separate tax entity, so you may want to consult a lawyer on the legal implications of an LLC.  From the IRS viewpoint a single member LLC is called a disregarded entity and is still taxed the same as a sole proprietor, unless you make an election to be taxed as a corporation using form 8832.

The contract employer usually requires a form W-9.  They may also require other non-tax related documentation like a certificate of insurance, or company specific required documents.

Our tax system is “as you go” so you will want to estimate your profit quarterly, and pay based on that estimate.  You’re responsible for all of your FICA – Social Security and Medicare – along with income tax on your profit.

Determining what to pay and when is crucial to avoid penalties and interest on underpayment of tax.  Here is a great resource on how to pay estimated taxes.

 When you file your 1040 tax return at the end of the year, if you didn’t make the entity election to be taxed as a corporation, you will file a Schedule C along with your 1040.

TurboTax will guide you through the entries required to generate this form with these steps.

Hope this helps!

Cindy