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This question is about consultant salaries.
How do consultants pay taxes?
Consultants pay taxes typically as self-employed professionals, this means they are responsible for paying both the employee and employer taxes concerning Medicare and Social Security. This is known as self-employment tax.
The majority of consultants must file what is called a Form 1040. This form includes a Schedule C for reporting business-related income and expenses. Consultants are required to report all earned income from the consulting services they provide during a specific tax year. This includes:
All income from consulting-based services
Payments they have received from clients
Any income earned from advertising
Any income earned from affiliate programs
In addition, some consultants might also be required to make approximated tax payments throughout a given year. This is based on their tax liability and their projected income. These estimated tax payments are usually made quarterly and must be determined by the consultant's income earned during each quarter.
Most consultants are eligible for a wide variety of tax deductions, including, but not limited to:
Travel expenses
Home-based office expenses
Professional development costs
The deductions help consultants decrease their overall tax burden and liability. All consultants should keep detailed financial records regarding their consulting services throughout each tax year, this includes earned income and expenses.
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