Being an independent contractor gives you great freedom and flexibility, but it can also make filing your taxes more difficult. As an independent contractor, you’re self-employed meaning your taxes and expenses aren’t automatically deducted. This could leave you wondering what deductions you’re eligible for. Luckily, we’ve put together a list of 9 tax deductions for independent contractors you need to know about.
How Do Tax Deductions Work When You Work as an Independent Contractor?
When you start working as an independent contractor, the Internal Revenue Service (IRS) considers you a business. That means business expenses can be deducted from your taxes. This is good news for you because it means that instead of paying taxes on what you’ve earned, you’ll pay taxes only on the difference between your earnings and your expenses.
While we've put together the most common freelance tax and 1099 tax deductions, always check with a certified tax professional.
Advertising
All of your advertising expenses can be tax-deductible, such as printing flyers, business cards, Google Adwords, Facebook Ads, etc. You can even deduct expenses paid for PR and marketing agencies.
Travel Expenses
Do you travel to attend your business meetings or conferences? If so, then the expenses associated with transportation and lodging are also deductible. When it comes to corporate trips, your airfare, 50% of meal costs, and hotel charges can be noted down as business expenses. Even if you increase the duration of your trip after the completion of your business commitment you can include your travel costs in your business expenditure. But, make sure the number of personal days on the trip doesn’t surpass the total amount of business days.
Remember, travel expenses for your family (spouse or children) are not deductible unless they are accompanying you for a legal business purpose.
Home Office Expenses
If you have a home office, you can also list these expenses for tax deductions. Here how:
Fill out the Form 8829 to list down the expenses associated with using and optimizing your home office.
Remember to include both direct expenses, such as renovations and office equipment and indirect expenses, like insurance and utilities.
Insurance
As an independent contractor, you’re not eligible to be on your employer’s health insurance plan. But, luckily your health insurance expenses like, medications and premiums, are tax-deductible. Your business insurance expenses can be deducted too, so don’t let the cost hold you back from having the right contractors insurance!
The insurance you need depends on what type of contractor you are. Finding the right coverage for your business can be daunting, turn to a reputable insurance provider for advice.
Phone Charges
Essential business utilities, like your cell phone bill, can also be deducted from you 1099. Even if you use your home phone or mobile for both personal and professional use, you can note down the portion of your cell phone bill for business.
Licenses and Taxes
You can deduct any business certifications, licenses, and regulatory charges you pay for your business, such as incorporation charges and small business licenses for your state. In certain cases, some types of taxes are deductible as well, including:
Local and state sales taxes--only for good or services sold
Payroll taxes-- this only applies if you have employees
Federal highway use tax
Property taxes on company assets
The following taxes are not deductible:
Taxes on personal use assets
Federal income taxes like the self-employment tax – which is declared on Form 1040
Local and state property sales taxes
Interest
If you charge your company expenses on a credit card, the portion of the interest payments can be listed as company expenditures, and are therefore tax-deductible. Keep in mind that there is a specific limit to the deductibility of this interest.
Other Additional Expenses
There are several other basic yet essential costs that are often overlooked and undervalued by most independent contractors. Some of these common deductions include:
- Debt
- Expenses for defending or acquiring trade names and trademarks
- Start-up costs of the business
The Bottom Line
These are just some tax deductions for independent contractors. You should be aware of these in order to decrease your taxable income. Of course, you should always contact your accountant or tax advisor before you claim any of these tax deductions.
Editorial note: This content is meant for informational purposes only and is not meant to replace the advice of tax experts.
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