Keeping track of business documents seems like an obvious obligation for an independent contractor. However, it isn’t easy to know everything you need to do regarding this process. Documented proof is the only sure-fire way to defend against fees and legal claims from the IRS.
But do you know what to keep and how long you should keep it for? When you file taxes as an independent contractor, leaving a paper trail to prove independent contracting work is more important now than ever before!
And Shoeboxed wants to make sure you understand the benefits of keeping the following documents safe, secure, and accessible!
Invoices (7 years)
It’s recommended to keep key business ledgers like invoices for seven years, and for good reason, too! It’s the best way to protect your contracted accounts against a conflict with a client project. Invoice statements also verify that you are subject to profits and losses, which is one of the factors in the Twenty Factor Test for an independent contractor. In the event of an IRS audit, this will help prove your status as a contractor.
Travel mileage logs (3 years)
Like any good expense reporting habit, keeping travel mileage logs ensures protection against tax audits and business disputes. They can also be used for travel deductions. There are plenty of travel miles that qualify, including business travel to and from airports and hotels, errands and supply runs, travel to client offices, and to and from business meals.
Effective from July 1st, 2022, the gas mileage rate is 62.5 cents per mile until the end of 2022. Read more here.
Business cards (forever)
Being a successful contractor requires agile networking skills. At any given moment, there’s a chance that you will stumble across your next great project, partner, or client. Unfortunately, contractors collect dozens of business cards every month that are habitually trashed or misplaced. Keeping business cards can help secure resourceful relationships; you never know when one of those contacts will come in handy. Working for multiple clients is also part of the IRS’s Twenty Factor Test, and business cards may provide evidence that you are not controlled by a single employer.
Service advertisements and listings (forever)
Keeping copies of past service advertisements and listings is yet another easy way to formally and legally prove a contractor-client relationship. The IRS says that making services available to the general public on a regular and consistent basis demonstrates autonomy in the nature of the work. It also confirms your intent of work in the event that a client wants to claim you as an employee rather than a contractor.
Project records (7 years)
Contractors are required to fill out form 1099-MISC, a detailed document that asks what you made for each individual job. Project documents, including the contract, change orders, correspondence, logs, monthly reports, and schedules provide the specifications and technicalities needed not only to fill out a 1099, but they also provide detailed insight of your contract work to the IRS if your worker classification ever comes into question.
Tax returns (3 years)
Due to the IRS statute of limitations, three years from the date of your tax return (or from the date of filing, whichever is later) is typically the standard time to keep business tax returns for tax-related business documents. The statute states that you have three years to file a claim for a refund, and the IRS has three years to appraise a tax if your income was not accurately reported. Even if these two situations don’t apply to you, keeping recent tax records protects you from any doubts that may be raised against your tax filings in the future. (IRS.gov)
Professional licenses and insurance certificates (forever, or until expiration)
Many jobs require contractors to be professionally certified in a given field to complete a client project. Though the regulations vary state-by-state and city-by-city, having these documents on hand and ready to present to a potential employer streamlines the hiring process, increases the probability of getting hired for the job, and may even increase your potential pay. Clients want to know they are legally protected and are hiring the right person for the job — it pays off to gain their trust.
Frequently asked questions
How do you file taxes as an independent contractor?
This depends on how you set up your business. As an independent contractor, you’re either:
- Sole proprietors
- A single member LLC
- A single member LLC taxed as an S-corporation
If you fall into one of the two first categories, the forms you file will be exactly the same, and you’ll also be taxed the same as well. So for sole proprietors and single-member LLCs, you’ll file the following forms:
Learn more on how to file taxes as an independent contractor: How to File Taxes as an Independent Contractor: A Step-by-Step Guide
How do I fill out Form 1040 for independent contractors?
Form 1040 is a tax form that shows how much money you earned in the past year. You use this form to report your income to the IRS and claim tax deductions or credits. Your tax refund and tax bill are both calculated using information from your tax return. You can file your tax return either electronically using tax software or you can download Form 1040 directly from IRS.gov if you want to do it by hand.
Watch this tutorial video for more details on how to fill out Form 1040:
What are the forms you need when hiring an independent contractor?
1. W-9 Form – Request for taxpayer identification number and certification
If you pay an independent contractor more than $600 in taxable income in a given year, you and the contractor need to report this money to the IRS. You will need to get a W-9 form filled by your contractor to acquire their tax and financial information.
2. Work contract between the contractor and your business
A work contract details the business relationship between a contractor and a client. Having a written contract is crucial for bookkeeping and tax purposes.
A work contract is a document that outlines the business relationship between you (employer) and the contractor. This document specifies what the contractor will do for your business, their wage, and payment method. The contract is essential for your business’ bookkeeping and tax purposes. When you hire a contractor, insert the clause stated in the Contractor Code of Business Ethics and Conduct (Nov 2021).
3. Form 1099-NEC – Non employee compensation
Form 1099-NEC is a form used to report payments a contractor receives from a non-employer. This form is especially helpful if the payments are not considered compensation by the IRS.
A 1099-NEC is only required if the business has paid a contractor $600 or more for the year. If the contractor’s income is less than $600, they will still need to report it on their taxes. However, if they make less than the minimum income for filing taxes, they don’t have to.
4. Payment information and documentation
Payment information includes invoices, bank statements, and (if applicable) work orders.
Tracking 1099 expenses: How do I keep track of taxes as a 1099 contractor?
When you’re working as a 1099 contractor, there’s a lot to keep track of. In order to get the largest tax break possible, keep a detailed log of all your business expenses so you can report these when the tax season comes.
There are several ways to keep track of your expenses:
1. Take pictures and keep track of receipts, both digital and physical invoices.
2. Keep a spreadsheet to track both your income and expenses.
3. Use an expense tracking app.
Can independent contractors be required to attend meetings?
If your employer mandates training or meeting attendance in order to do your job, that’s an indication that you are working for someone and have an employer-employee relationship.
Can independent contractors have company business cards?
The independent contractor should have a business card in their own business name, not the company’s, showing that they are an independent contractor.
However, to decide if you, the contractor, can have a business card bearing your business name and logo, use the IRS’s Twenty Factor Test for determining whether you are a true independent contractor or an employee.
As a contractor, how much should you be expected to pay in taxes?
This depends on several factors such as which state you stay in or whether you have any kids, but to be safe, if it’s your first contracting year, aim for saving 20 – 30% of your paycheck for taxes.
Start looking into tax deductions and confirm your eligibility for the deductions. Do a good job of tracking your mileage and your expenses, and you’ll save money in the amount of taxes you’ll need to pay per year.
Bonus infographic: 7 useful documents every independent contractor should keep
The number of American freelancers and contractors are projected to be 90 million by 2028 (Upwork). Make sure you’re protected against new contract work laws and save your documents for secure and easy access. Shoeboxed offers mail-in services with premium plans, allowing contractors to send in their important documents and never have to worry about being able to find and provide legal supporting documents for their contract work. Focus on working for yourself and doing what you love – we’ll handle the paperwork.
Originally published on September 30, 2015. Updated on August 18, 2022.
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- The Ultimate Receipt Organization & Management Resource
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