Why Contractors Often Get Into Tax Debt—And How to Get Out
As a contractor, you enjoy the freedom of being your own boss, but that independence also comes with challenges—especially when it comes to taxes.
Unlike traditional employees, contractors don’t have taxes automatically withheld from their income. This creates an extra layer of responsibility that can easily lead to tax debt if not handled correctly.
Why Contractors Struggle With Tax Debt
Irregular Income: One of the biggest challenges contractors face is fluctuating income. Some months you’re busy, while other times, business is slow. Without a steady paycheck, it can be difficult to predict how much you’ll owe in taxes each year.
Failure to Pay Estimated Taxes: Contractors are required to pay quarterly estimated taxes to avoid penalties, but many don’t realize this or don’t set aside enough money throughout the year. Missing these payments can lead to a large tax bill come filing season.
Tax Deductions: While contractors can deduct business expenses like supplies, mileage, and office space, navigating which deductions are valid and keeping accurate records can be confusing. Missing out on key deductions or making errors in calculating them can also lead to problems.
Self-Employment Taxes: In addition to regular income tax, contractors are responsible for paying self-employment taxes (Social Security and Medicare). These taxes can add up quickly and catch contractors off guard if they’re not prepared.
How to Get Out of Contractor Tax Debt
If you’ve found yourself in tax debt as a contractor, don’t panic—there are options available to help you get back on track:
Set Up a Payment Plan: If you owe more than you can afford to pay all at once, the IRS offers installment agreements. This allows you to make manageable monthly payments and avoid further penalties.
Offer in Compromise: If paying the full amount is impossible, you may qualify for an Offer in Compromise (OIC), which allows you to settle your tax debt for less than you owe. The IRS considers your ability to pay, income, expenses, and asset equity when reviewing OIC applications.
Penalty Abatement: If you’ve incurred penalties for late payments or underpayment, you might be able to request penalty abatement. The IRS may forgive penalties if you have a valid reason, such as financial hardship or medical issues.
Professional Help: Navigating tax debt solutions on your own can be overwhelming. That’s why working with a tax resolution specialist is crucial. A professional can negotiate on your behalf, ensure you qualify for the best relief programs, and help prevent future tax problems.
Why Ben Butterfield is the Expert You Need
When it comes to tax debt relief, Ben Butterfield is the trusted professional who will make all the difference in finding you the best possible solution.
As the founder of BPB Tax Resolutions, LLC, and a Certified Tax Resolution Specialist, Ben has over 25 years of experience in accounting and finance. His in-depth knowledge of IRS policies and procedures means he knows exactly how to resolve tax issues for contractors.
Ben’s expertise as an enrolled agent—one of the highest credentials in tax resolution—allows him to represent clients in virtually any tax matter and before any IRS office.
Whether you’re dealing with back taxes, wage garnishments, or mounting penalties, Ben will create a personalized plan to help you regain control of your financial future.
Don’t let tax debt keep you from running a successful contracting business. Call BPB Tax Resolutions today at (402) 779-7399 for a free consultation with Ben Butterfield. Let’s get you back on the path to financial freedom!
