Tax Tips for Independent Contractors

Here's how to avoid penalties and maximize tax deductions


If you're a consultant, freelancer or contractor, your taxes likely are more complicated than the taxes of someone who works for a single employer and has money withheld from each paycheck. Of course you're in good company: 17.7 million Americans are independent workers, according to a recent report.1

But while your taxes may be complex, you can take steps to help you avoid penalties and minimize the money you owe.

Budget for extra taxes

Traditional employees split Medicare and Social Security taxes with an employer. However, if you're self-employed you pay both portions—to the tune of 15.3 percent of your total self-employment income. This extra tax is sometimes called self-employment tax, and it's a good idea to set aside additional money from each paycheck to cover it.

"For many people that's the biggest federal tax," says Stephen Fishman, author of Working for Yourself: Law & Taxes for Independent Contractors, Freelancers & Consultants.

Pay quarterly estimated taxes

If you earn enough to pay income taxes and you haven't had money withheld by an employer, you need to pay quarterly estimated taxes in January, April, June and September. To avoid an underpayment penalty, Fishman recommends paying 100 percent of last year's tax liability, or 90 percent of what you owe this year.

Save your 1099s

Traditional employees are issued W-2s from their employers before filing their taxes, but a consultant or freelancer gets a different form called a 1099. Save this form for at least three years, and double-check the amount of income reported.

"That form is sent to the IRS, and they do check that against what you put on your tax return," Fishman says. "If the amount is incorrect, make sure you ask your client to file a corrected 1099."

Keep track of eligible deductions

Business owners, including consultants and freelancers, can take certain tax deductions traditional employees can't. These business tax deductions can help reduce your tax bill, but you need to be sure to document them. For example if you drive your car for business, keep track of mileage using a mile log or a smartphone app.

"You can claim 56 cents for every mile you drive this year, or you can keep track of every nickel you spend on maintenance and gas, and deduct that based on the percentage of your car usage that was devoted to business," Fishman says.

If you use space in your home exclusively for business, you may qualify for the home office tax deduction. This is based on the percentage of your home you use for business. The IRS now offers a simplified option for determining the home office deduction, which may make it easier to crunch the numbers.2

Taxes don't have to be a headache for nontraditional workers. Keeping track of deductions and staying on top of quarterly taxes can help prevent issues with the IRS down the road.

1. "2013 MBO Partners State of Independence Report," MBO Partners, September 2013.

2. "Simplified Option for Home Office Deduction,", July 2013.

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.


Investment and Insurance Products:

Are Not FDIC or any other Government Agency Insured   Are Not Bank Guaranteed  May Lose Value 

© 2018 SunTrust Banks, Inc

equal housing logoSunTrust Bank is an Equal Housing Lender. Member FDIC

equal housing logoEqual Housing Lender. SunTrust Mortgage, Inc

SunTrust, SunTrust Mortgage, SunTrust PortfolioView, SunTrust Robinson Humphrey, SunTrust Premier Program, AMC Pinnacle, AMC Premier, Access 3, Signature Advantage Brokerage, Custom Choice Loan and SunTrust SummitView are federally registered service marks of SunTrust Banks, Inc. All other trademarks are the property of their respective owners.

Services provided by the following affiliates of SunTrust Banks, Inc.: Banking products and services are provided by SunTrust Bank, Member FDIC. Trust and investment management services are provided by SunTrust Bank, SunTrust Delaware Trust Company and SunTrust Banks Trust Company (Cayman) Limited. Securities, brokerage accounts and insurance (including annuities) are offered by SunTrust Investment Services, Inc., a SEC registered broker-dealer, member FINRA, SIPC, and a licensed insurance agency. Investment advisory services are offered by SunTrust Advisory Services, Inc., a SEC registered adviser. GFO Advisory Services, LLC is a SEC registered investment adviser that provides investment advisory services to a group of private investment funds and other non-investment advisory services to affiliates. Mortgage products and services are provided by SunTrust Mortgage, Inc.

SunTrust Mortgage, Inc. - NMLS #2915, 901 Semmes Avenue, Richmond, VA 23224, 1-800-634-7928. CA: licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, IL: Illinois Residential Mortgage Licensee #MB-989, Department of Financial and Professional Regulation, 100 W. Randolph, Suite 900, Chicago, IL 60601, 1-888-473-4858, MA: Mortgage Lender license #-ML-2915, NJ: Mortgage Banker License - New Jersey Department of Banking and Insurance, NY: Licensed Mortgage Banker—NYS Department of Financial Services, and RI: Rhode Island Licensed Lender.

"SunTrust Advisors" may be officers and/or associated persons of the following affiliates of SunTrust Banks, Inc.: SunTrust Bank, our commercial bank, which provides banking, trust and asset management services; SunTrust Investment Services, Inc., a registered broker-dealer, which is a member of FINRA and SIPC, and a licensed insurance agency, and which provides securities, annuities and life insurance products; SunTrust Advisory Services, Inc., a SEC registered investment adviser which provides Investment Advisory services.

SunTrust Private Wealth Management, International Wealth Management, Business Owner Specialty Group, Sports and Entertainment Group, and Legal and Medical Specialty Groups and GenSpring are marketing names used by SunTrust Bank, SunTrust Banks Trust Company (Cayman) Limited, SunTrust Delaware Trust Company, SunTrust Investment Services, Inc., and SunTrust Advisory Services, Inc.

SunTrust Bank and its affiliates do not accept fiduciary responsibility for all banking and investment account types offered. Please consult with your SunTrust representative to determine whether SunTrust and its affiliates have agreed to accept fiduciary responsibility for your account(s) and if you have completed the documentation necessary to establish a fiduciary relationship with SunTrust Bank or an affiliate. Additional information regarding account types and important disclosures may be found at

SunTrust Robinson Humphrey is the trade name for the corporate and investment banking services of SunTrust Banks, Inc. and its subsidiaries, including SunTrust Robinson Humphrey, Inc., member FINRA and SIPC.