“Taxes are paid in the sweat of every man who labors.” – Franklin D. Roosevelt

As an independent contractor it’s important that you think of yourself as a business owner, not an employee. As far as Uncle Sam is concerned, that means tax responsibilities are yours alone. It also means that you should consider commission checks an inflow of money into your business, NOT as paychecks that go straight into your pocket! Like any business you must first pay taxes and other expenses before you net a profit. In fact, many agents separate their personal finances from their business finances. All commission checks go straight into a business account and all expenses are paid from that account. A business credit card is also useful. This is the easiest way to tally what you need for tax time. It also gives you the best understanding of how much you’re actually earning, and assures you don’t mistakenly spend money you will owe later.

For your first year or two, I suggest using a tax professional to help you learn what’s required as an independent contractor and develop a system you can eventually use on your own. Some agents balk at spending the money, but when you consider that you’re going to hand over roughly 1/3 of your commissions to the government, isn’t it worth a couple hundred dollars to be sure you’re not going to incur any unexpected fees (for late payment or under-estimated taxes) and that you’re paying the most you need to and not a penny more?

Once you hire a tax advisor you can expect that person to be available throughout the year to answer quick questions by phone or email free of charge. Additionally, you can educate yourself with a host of reference materials for small businesses available free online at www.irs.gov.