How to Become a Professional Contractor
Many of those who work in construction will decide to become a professional contractor. Contracting can be very attractive because it is lucrative and it does offer independence.
There are also a lot of responsibilities and requirements involved in contracting. Many people who attempt to make a living as a contracting end up going back to the security of regular employment.
For those who are able to do it, contracting can be both lucrative and very rewarding. If you are thinking about contracting you should be aware of all the requirements.
Requirements for Professional Contractors
- A contractor is an independent business so he or she will need a business or sales tax license in addition to a contracting license. This is usually issued by the state or local government. In some cases, such a license will be needed in every jurisdiction the contractor operates in.
- In most locations in North America a contractor will need to get both a business license and a contractor’s license. Most states require a contractor to pass a test about the building codes and other subjects to qualify for such a license. This license can cost several hundred dollars.
- Contractors are usually required to get quite a bit of insurance. Most contractors will need to be bonded (bonding is an insurance which pays for another contractor to complete the job). Contractors usually need to get liability insurance as well.
- If a contractor is operating in the United States he or she will have to pay federal income tax if he or she earns more than $400 a year from contracting. If state income is collected the contractor will have to pay it as well.
- In most cases the contractor will have to incorporate a business. This can be a limited liability corporation, a sole proprietorship or another business.
- A contractor may or may not need to pay sales tax. In some US states including Texas, all service providers including contractors have to pay sales tax. In countries like the United Kingdom the contractor will have to pay the VAT (Value Added Tax). The Canadian province of Ontario recently implemented a tax similar to that in Texas. A contractor should contact the state revenue agencies to see what taxes are assessed.
- Most contractors will need to have some sort of financing such as a credit card or a line of credit from a bank to operate. Two common kinds of credit for contractors are checking account lines of credit and vendor credit. In many cases, those starting out as contractors will need to get a job in order to get financing.
- Contractors that hire workers will have to pay taxes on them. In the United States all employers have to pay Medicare and Social Security taxes on workers. This means that they will have to file a W-9 form with the US for all workers. In states with income tax the contractor will have to pay that too.
- Something to be aware of is that some states will run criminal background checks on those that apply for a contractor’s license. A person with a felony conviction on his or her record may or may not be able to get a contractor’s license.
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