Filing Back Taxes While Self-Employed or an Independent Contractor

Overview

Filing back taxes can be especially complex for self-employed individuals and independent contractors. Unlike employees, you are responsible for tracking your own income, business expenses, and self-employment taxes. This article outlines the steps, documentation, and special considerations for bringing your tax filings up to date if you work for yourself.

Step-by-Step Guide

1. Gather Income Documentation

Collect all Forms 1099-NEC, 1099-MISC, and any other records of income received for each year you need to file. Even if you did not receive a 1099, you are required to report all income earned, including cash and non-cash payments.

2. Collect Expense Records

Assemble receipts, bank statements, and other documentation to substantiate your business expenses. These records are necessary for accurately completing Schedule C (Profit or Loss from Business).

3. Complete the Required Forms

  • File Form 1040 for each year, attaching Schedule C to report business income and expenses.

  • If your net earnings from self-employment are $400 or more, also file Schedule SE to calculate your self-employment tax (Social Security and Medicare).

  • If you paid $600 or more to other independent contractors, file Form 1099-NEC for each payee, along with Form 1096 as a summary transmittal.

4. Address Worker Classification Issues

If you were misclassified as an independent contractor but should have been an employee, you may need to file Form 8919 (Uncollected Social Security and Medicare Tax on Wages) and/or amend prior returns using Form 1040-X.

5. File and Pay

Mail your returns to the IRS address for the relevant tax year or file electronically if available. If you owe taxes, pay as much as possible to reduce penalties and interest. If you cannot pay in full, request an installment agreement or consider an Offer in Compromise for financial hardship. 6. Retain Records and Monitor for IRS Notices

Keep copies of all filed returns, supporting documentation, and proof of payment. Watch for IRS notices regarding processing, penalties, or requests for additional information.

Special Considerations and Challenges

  • Accurate Classification: Ensure you are correctly classified as self-employed. Misclassification can result in additional taxes, penalties, and the need to file corrective forms.

  • Missing Records: If you lack documentation, estimate income and expenses as accurately as possible and be prepared to substantiate your figures if audited.

  • Penalties and Interest: The IRS assesses penalties for late filing and late payment, as well as interest on unpaid taxes. Filing as soon as possible and paying what you can reduces these amounts.

  • Information Return Penalties: Failure to file required Forms 1099-NEC or 1096 can result in additional penalties.

  • State Taxes: Don’t overlook state income tax obligations, which may have separate forms and deadlines.

IRS Relief Options

  • Installment Agreements: Request a payment plan if you cannot pay in full.

  • Offer in Compromise: Apply to settle your tax debt for less than the full amount owed if you meet hardship criteria.

  • Voluntary Classification Settlement Program (VCSP): If you misclassified workers, you may be eligible to reclassify them as employees for future periods and limit past liability.

Conclusion

Filing back taxes as a self-employed individual or independent contractor requires careful documentation, accurate reporting, and attention to IRS procedures. By following these steps and addressing common challenges, you can bring your filings up to date and minimize penalties and interest.

Click Contact to schedule a call with one our tax specialists.