Items you will need
- Income records
- Expense records
- Schedule C or Schedule F
Receiving income from contract labor means filing the long form for your personal income taxes. You will need to fill out and file either a Schedule C for a business or a Schedule F if your income was in the agricultural field.
Contract labor is also subject to Self-Employment tax. The Self-Employment tax is a contract laborer's way of contributing to their Social Security fund.
Collect information about contract labor income and legitimate expenses you may be able to deduct. For example, if you are working as a freelance writer, you will need to collect all the information about who you worked for and the amounts you were paid. Legitimate expenses can include the cost of your computer, postage, telecommunications, including Internet service, and office expenses.
To pay the minimum amount of tax, you will need to show how much it cost you to be in business. Those expenses directly offset the amount of Income Tax and Self-Employment tax you pay.
Fill out Schedule C or Schedule F for the tax year. Begin by filling in the top of the form. Schedule F is for farming and other agricultural endeavors, so most people would fill out a Schedule C.
The top portion of the form has spaces for the name of your business, your name and Social Security Number and your business classification.
The second portion of the form is where you enter your income. There are different types of income choices available, whether it is general income or if you received it from a government grant. Select the areas that apply and leave those that do not apply to your contract labor blank. You will be able to total your income to get your gross income from your contract labor.
The major portion of the Schedule C or Schedule F is dedicated to classifying your expenses. Enter the amounts you spent for items such as advertising, interest paid, tools and utilities. Total the expenses.
Subtract the total expenses from the total gross income to find your profit or loss. Transfer these numbers to your 1040 Personal Income Tax form and to Schedule SE to calculate any Self-Employment tax you may owe.
Complete your 1040 long form. You will be able to subtract exemptions and credits from the amount you owe. It is possible that you will receive a refund, even if you did not pay in any taxes, if you qualified for an Earned Income Tax Credit or other credit. File your taxes by the due date to avoid paying any penalties or interest.
If you have expenses that could be considered personal use as well as business use, consider prorating the amount to be accurate on your income taxes.
Keep all of your receipts for both income and expenses you claimed on your contract labor for a minimum of three years in case of audit.
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