Top Ten deductions for independent contractors
Independent contractors provide services or products under specified tenders, verbal agreements, and written contracts. The IRS does not intervene if you fail to avail of benefits under tax deductions; therefore, you must be informed about various tax deductions for your Business taxes as an independent contractor. Mentioned below are the top ten deductions for independent contractors:
1.) The Home Office Deduction
You can deduct expenses for running your home office if you're an independent contractor. This includes a portion of your mortgage or rent, utilities, insurance, and repairs. To figure out the amount you can deduct, calculate the percentage of your home dedicated to your workspace. For example, if your home office is 200 square feet and your home is 2,000 square feet, you can deduct 10% of your mortgage or rent, utilities, insurance, and repairs.
Suppose you have a separate structure on your property that houses your office, like a detached garage or shed. In that case, you can deduct the entire amount of mortgage or rent, utilities, insurance, and repairs for that structure while filing your business taxes.
2.)The Vehicle Expense Deduction
If you use your vehicle for work, you may be able to deduct the costs of operating and maintaining it. The deduction is claimed as an adjustment to income, so you don't have to itemize to take it. To qualify, you must use your vehicle primarily for business purposes. The IRS says that if you use your car for business and personal reasons, you can deduct only the portion of the expenses attributable to the business use while filing your business taxes.
3.) The Self-Employment Tax Deduction
You are responsible for paying your business taxes as an independent contractor. However, you may be able to deduct the cost of your self-employment tax from your income taxes. To qualify for the deduction, you must have earned income from self-employment during the tax year. This includes payment from freelancing, consulting, or running your own business. The premise is equal to the self-employment tax you paid during the year. If you're eligible for the deduction, you can claim it on the Schedule of your business tax return.
4.) The Health Insurance Deduction
For Independent contractors, the cost of health insurance premiums can be deducted from income taxes. To deduct the cost of your health insurance premiums, you'll need to itemize your deductions on Schedule C of your tax return. Health insurance premiums are considered an "above-the-line" deduction, which means you can take the deduction even if you don't itemize your other deductions while filing your business tax online.
5.) The Retirement Plan Deduction
The Retirement Plan Deduction is one of the top deductions for independent contractors. This deduction allows you to deduct your contributions to your retirement plan from your business taxes. The Retirement Plan Deduction is a great way to save for retirement and reduce your taxable income while filing your business tax online.
6.) The Education Expense Deduction
As an independent contractor, you can deduct the cost of education and professional development courses to maintain or improve your skills. The education expense deduction can be claimed for formal courses taken at an accredited institution and informal learning opportunities, such as online seminars or webinars. Those costs are also deductible if you are required to complete continuing education credits to maintain your professional license. To claim the deduction, you must itemize your expenses on Schedule C of your business tax return. Keep records of all paid invoices or receipts, as well as any course materials or other documentation that can verify the educational nature of the expense before you prepare to file your Business taxes.
7.) The Business Equipment Deduction
If you're an independent contractor, you can deduct the cost of business equipment from your taxes. This includes items like office furniture, computers, and software. The deduction is based on the cost of the equipment, so be sure to keep receipts and documentation handy while filing business taxes.
8.) The Travel Expense Deduction
If you are an independent contractor, the IRS allows you to deduct many of the expenses associated with your work while filing your business tax online. This includes travel expenses. When deducting travel expenses, you can either remove the actual costs of your travel or use the standard mileage rate. The standard mileage rate for 2018 is 54 cents per mile. To deduct your travel expenses, you must keep track of all your receipts and records. You will also need to keep a record of the reason for your travel and travel dates to match the assessment year of the business taxes.
9.) Coffee and Snack Deduction
For the business taxes beginning from 2018, you are allowed to avail of tax benefits for food and beverages that you cater to while having office or client meetings. The taxation is set at a minimum of 50% and goes up to 100% if the expenses are declared publicly. You can also avail of this deduction if your employees need to take meals in the office for some reason.
10.) Child Care Deduction
This tax deduction can be an excellent relief for Independent contractors whose spouses work with them. Under this benefit, you can offer up to $5000 to your spouse for dependent care benefits, which can be later claimed during your business tax return.
From office expenses to travel costs, there are several ways you can offset your income and lower your tax bill. To avail of the benefits for tax deductions, you must keep detailed records of your transactions (receipts, invoices, statements, etc.) before filing your business taxes. Understanding the unique challenges that independent contractors face when it comes to taxes. NSKT Global helps you navigate this process by offering various tax services specifically designed for independent contractors, including:
- Business Taxes planning and preparation
- Self-employment tax assistance
- Filing your annual Business tax return
- Advice on tax-deductible expenses
Contact us today to learn more about our services and how we can help you stay compliant with all business taxes and regulations.