Tax deductions for independent contractors
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As an independent contractor, you have the flexibility to work on your own terms and build your own business. However, with the freedom of being your own boss comes the responsibility of managing your finances, including filing taxes. One of the benefits of being an independent contractor is that you have access to a number of tax deductions that can help lower your tax liability. Here are some tax deductions that independent contractors should be aware of.
Also, as an independent contractor, here is an article on expenses that can be written off.
Home office deduction
If you work from home, you may be eligible to deduct a portion of your home expenses, such as rent or mortgage interest, utilities, and insurance, as a home office deduction. To qualify, your home office must be used exclusively for business purposes and be your primary business place.
Vehicle expenses
If you use your personal vehicle for business purposes, you can deduct the expenses associated with using your vehicle, such as gas, oil changes, repairs, and insurance. You can either deduct the actual expenses or use the standard mileage rate, which is 58 cents per mile in 2021.
Equipment and supplies
If you purchase equipment or supplies for your business, such as a computer, printer, or office supplies, you can deduct the cost of these items as a business expense.
Travel expenses
If you travel for business purposes, you can deduct the expenses associated with your travel, such as airfare, lodging, and meals. Keep in mind that the trip must be primarily for business purposes and not for personal reasons.
Professional fees
If you hire a professional, such as an accountant or attorney, to help you with your business, you can deduct the fees associated with their services.
Insurance premiums
If you pay for health insurance or liability insurance for your business, you can deduct the premiums as a business expense.
Retirement contributions
As an independent contractor, you are responsible for your retirement savings. You can contribute to a traditional or Roth IRA and deduct the contributions as a business expense.
Self-employment tax deduction
Self-employment tax is the tax that independent contractors pay on their net earnings. You can deduct half of the self-employment tax as a business expense.
It is important to keep accurate records of your expenses to support your tax deductions. Keep receipts, invoices, and bank statements to document your expenses. Additionally, consider hiring a tax professional to help you navigate the complexities of the tax code and maximize your deductions.
In conclusion, independent contractors have access to a number of tax deductions that can help lower their tax liability. By taking advantage of these deductions and keeping accurate records, independent contractors can keep more of their hard-earned money in their pockets.
How can Skuad help?
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