Set Aside a Percentage of Every Payment
The simplest tax savings strategy is also the most effective. Set aside 25 to 30 percent of every payment you receive into a separate savings account. Do not touch it.
This covers federal income tax, self-employment tax, and state taxes for most contractors. If you are in a high-tax state, you might need to bump it up a few points. Ask your accountant for the right percentage.
Pay Quarterly Estimates
The IRS expects self-employed contractors to pay estimated taxes quarterly. If you wait until April to pay everything at once, you will owe penalties and interest on top of the tax bill.
Quarterly payments also make tax time less painful. Instead of one giant bill, you are paying throughout the year. It is easier on your cash flow and keeps you out of trouble with the IRS.
Track Every Deductible Expense
Contractors have a lot of legitimate tax deductions - tools, materials, vehicle expenses, insurance, software, home office, and more. But if you do not track and document these expenses, you can not deduct them.
Keep receipts, use a system to categorize expenses, and review them monthly. Every dollar of deductions you miss is a dollar you pay taxes on unnecessarily.
Work With a Contractor-Savvy Accountant
Not all accountants understand contracting businesses. Find one who works with contractors and understands job costing, estimated taxes, equipment depreciation, and the specific deductions available to your trade.
A good accountant pays for themselves many times over in tax savings and financial guidance. This is not the place to cut corners.
Platform Solution
How myCT1 Business-in-a-Box Solves This
myCT1 with QuickBooks integration keeps your financial records organized year-round. Every expense, invoice, and payment is tracked and categorized, making tax preparation straightforward.
The reporting dashboards show income and expenses in real time so you always know your tax exposure. No more surprises in April. Track job profitability, revenue trends, and expense categories all from one platform.
Our contractor training platform includes financial literacy modules covering tax planning, deduction tracking, and working with accountants.