5 ways to write off expenses as an independent contractor
As an independent contractor, managing your finances can be a challenge. You have to take care of everything from invoicing to taxes. One way to ease the burden is to write off expenses on your tax returns. Writing off expenses is a way to reduce your taxable income, which can ultimately reduce your tax bill. Here are five ways you can write off expenses as an independent contractor.
Home Office Expenses
If you work from home, you can write off some of your home expenses, such as rent, utilities, and internet. However, to qualify for this deduction, you must use a part of your home exclusively and regularly for business purposes.
The IRS provides two methods for calculating your home office deduction: the simplified and regular methods.
The simplified method enables you to take off five dollars ($5) per square foot of your home office, up to a maximum of 300 square feet. This method is easy to calculate and doesn’t require you to keep track of your actual expenses. However, the regular method may provide a larger deduction if your home office expenses exceed $1,500. With the regular method, you have to keep track of your actual costs and calculate the percentage of your home used for business purposes.
Business Travel Expenses
If you travel for business, you can write off your travel expenses, including transportation, lodging, and meals. However, you can only deduct necessary and ordinary expenses for your business. For example, suppose you’re a freelance writer attending a conference. In that case, you can remove your plane ticket, hotel, and meal cost. But you can’t deduct the cost of a side trip to a theme park.
Health Insurance Premiums
As an independent contractor, you may have to purchase your health insurance. The great news is that you can deduct the cost of your health insurance premiums on your tax returns. However, you can only deduct the amount that surpasses 7.5% of your modified gross income. For instance, if your modified gross income is $50,000 and you pay $5,000 in health insurance premiums, you can deduct $1,250 ($5,000 — $3,750).
If you purchase supplies for your business, such as paper, ink, and software, you can deduct the cost of these items on your tax returns. However, you can only deduct items that are necessary and ordinary for your business. For example, if you’re a graphic designer, you can deduct the cost of design software, but you can’t deduct the cost of a new wardrobe.
As an independent contractor, you don’t have access to a company-sponsored retirement plan. However, you can still contribute to a retirement plan, such as a traditional or Roth IRA, and deduct the contributions on your tax returns. For example, if you’re under 50 and contribute $6,000 to a traditional IRA, you can remove the entire amount on your tax returns.
In conclusion, as an independent contractor, it’s important to keep track of your business expenses and take advantage of any available deductions. Writing off expenses is a way to reduce your taxable income, which can ultimately reduce your tax bill. By following these five tips, you can ensure you take full advantage of the deductions and keep more money in your pocket.
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