Oftentimes, contractors are shocked at their tax bill when it comes time to file their first return as a freelancer. What most people don’t know is that when you’re on a company’s payroll, your employer pays into your Medicare and Social Security. So, when you look at your pay stub, whatever is deducted from your pay for Medicare and Social Security has been matched by your employer, dollar-for-dollar, and that amount does not show up on your pay stub.

When you start contracting, you will need to pay Self-Employment Tax—on top of federal and state taxes—which is basically paying into Social Security and Medicare for yourself.

This guide will walk you through the steps of what to look for when getting help with your taxes.

Quarterly Tax Payments

If you expect to pay over $1,000 in taxes for the year, you are required to pay estimated quarterly taxes. We highly recommend that you work with a tax professional (see below), but if you’d like to do the calculations yourself, you can estimate and file your quarterly taxes using IRS Form 1040-ES. Quarterly tax payments are due in April, July, October, and January.

Hire an accountant or do it yourself?

A study by Intuit found that 89% of small businesses say that they are more successful with an accountant or advisor. And while it may seem like a good idea to save some money and file taxes yourself, working with an accountant has many advantages:

• You may miss out on tax breaks by failing to claim expenses.
• Underestimating your tax bill, or not paying quarterly taxes properly during the year, may result in fines and interest.
• An accountant can help you decide what kind of LLC or corporate structure you should be, based on your situation, thus lowering your tax liability each year.
• Most accountants have auditing assistance; they should go with you to the IRS if you are ever audited, to defend their work.
• An accountant can ensure you are complying with both state and federal filings if needed.

We highly recommend that you find an accountant to work with, especially if you are a contractor. Your time is probably better spent working at your current rate than spending time trying to figure out your taxes; remember the cost of working with an accountant can, and should, go into calculating your hourly rate.

What to look for in an accountant

Here are some questions to ask when looking for an accountant.

1. How much experience do you have with contractors in my industry?

Look for an accountant that has experience with freelance workers and/or small businesses.

1. Do you integrate with the bookkeeping software or service that I’m using?

As we discussed in the Facet Bookkeeping Guide, many accountants work with bookkeeping software or companies, so getting an accountant the information they need at tax time may be as easy as giving them limited credentials so they can access your books. Look for an accountant that works with whatever you’re using for bookkeeping.

1. Do you do bookkeeping or do you expect me to do that?