When you work as an independent contractor, you are responsible for paying all of your taxes and an additional self-employment tax. This tax covers the Medicaid and Medicare taxes that you would see on your paystub. Additionally, you are responsible for paying your state taxes. This can add up quickly and so it is important to find as many deductions or credits as possible. When you first begin working as independent contractor, it can help to have an accountant do your taxes for you. Here are five deductions for independent contractors.
You can claim the premium of your independent health insurance. This only applies if you are currently not eligible for an employer offered plan, including your spouse's. If you choose not to carry insurance, you will have to pay a penalty when you file your taxes. Additionally, be sure to keep track of your medical expenses since you can deduct those as well.
Even though you are required to pay self-employment taxes, you can deduct half of the self-employment taxes when you file your taxes. This is because an employer would normally pay half of the taxes, and the other half would be deducted from your paycheck.
Home Office Deduction
If you operate your business primarily from your home, you can claim the home office tax credit. There are strict rules regarding this credit, and it is important to follow the IRS guidelines. The office must be set aside for business use only, and you need to keep careful track of your utilities and other bills throughout the year. A percentage of your home mortgage and utilities can be deducted each year.
Equipment and Marketing Expenses
In addition to your home office deduction, you can deduct expenses related to the supplies that you need to run your business. This can include everything from paper to tape to the new computer you bought this year. You can also deduct costs that you spend on marketing, which can include advertising, building a website and web hosting costs. Be sure to keep track of all of these expenses to help you save when it is time to file your taxes.
State and Local Taxes
You can deduct your state and local income taxes from your federal tax returns. Some cities will require a business license or that you pay taxes on your independent contract work. You may also be able to deduct property taxes from your income taxes, so be sure to keep a record of those payments, as well.
If you are feeling overwhelmed by the prospect of handling your own taxes, contact an income tax preparation service like UniqueTAXx AND ACCOUNTING.