What is now the twenty common law factor test, which determines if you're an employee vs.
independent contractor, is vague in its instructions.
This makes it different for an independent contractor to know if they're complying with the rules.
Many now are watching Congress to see if they will introduce legislation that changes the current rules (previously they'd been more restricted until legislation in the 90s made it easier to classify a worker as an independent contractor), making it harder for business owner's to classify a worker as an independent contractor.
Will this affect you as an independent contractor on oDesk? Probably not, but that's now to say that it's not good to keep up! Some of the changes may include eliminating protections for businesses in the classification of workers as contractors, allowing independent contractors to be able to change their status with the IRS (directly), and requiring the IRS to work with the DOL (Department of Labor) in classification violations.
This could expose businesses to more scrutiny.
Not to mention other legal actions- including, but not limited to, audits.
Taxes: SE is Self Employment Tax: The SE tax is around 15% percent of your income.
It was designed to be a substitute to the social security and medicare taxes you'd normally have coming out of your check (when on payroll).
The difference is that when you work for yourself, you pay the full tax whereas normally your employee would be paying half that amount.
However, deductions can be taken off your income.
So if you spend 50 dollars on gas relating to your job, you can take that amount off.
For a independent contractor working on oDesk (or any other site) your deductions include things such as the cost- and depreciation- of your PC, printer, etc...
That doesn't mean you can deduct clothes.
Obviously you can't deduct things like clothes but it's amazing how many people think they can deduct pretty much anything! You might, thought, be able to deduct a portion of your rent if you use a portion of your residence for work.
Just try to hold onto any receipts that are related to your job.
Finding an accountant may in fact pay for itself.
Since the amount of work they'll have to do for you is more limited than with a regular business, the will price accordingly.
But shop around! Expenses: One of the most common mistakes when operating a business is to under-estimate expenses.
Make a point to conduct research into the type of work you're doing and any and all cost associated with it, right down to extra paperclips! If you know anyone else doing independent contracting, don't be afraid to ask them a few questions.
Any deduction you miss means more taxes you have to pay.
While it may be difficult to incur the expense of an account prior to your making a profit, it helps ensure a successful work-at-home business.
If you think you can handle it yourself, buy a copy of Quick-books and keep on tops of things.
Mistakes To Avoid: The SBA estimates that only thirty-percent of small businesses succeed.
This applies to independent contractors as well- although the exact percentage my differ.
Treat yourself as if you were the business.
Every dollar that goes into your eduction and builds your knowledge is an investment in your future financial success.
While it may be difficult to make separations between what is for business use and what is a personnel expense, it can be done through research and keeping good habits (such as retaining receipts and doing your research on the tax code as it applies to you as a contractor).
Direct costs are more easily separated.
It's the indirect costs that are harder to keep track of.
An example of this is if your computer is used for both personal and business use.
You'd need to calculate the percentage of time you spend on both in order to achieve an accurate estimate on what your business cost is.
The same thing with printing and office supplies.
While you may be able to tilt the separation in favor of your business and get away with it, try to keep accurate records.
Getting in trouble with the IRS isn't going to help your business any.
The bottom line is that keeping good records is essential to your success, and the success of what as an independent contractor is your business.