With only 69 days left until the April 15 tax filing deadline, now is the time for independent contractors to begin preparing their returns. Filing taxes can be a daunting task for anyone, but it can be especially challenging for independent contractors. To ease this often stressful process, we suggest following our simple tax tips for independent contractors.
5 Tax Tips For Independent Contractors
Independent contracts, who may have multiple clients and variable income, should begin tax filing preparation by identifying their total income for the year. To streamline this process, a suggested tax tip for independent contractors is to have a separate business account to track income. This strategy would provide further documentation of income should an independent contractor ever be audited by the IRS.
Tally Those Receipts
One of our important tax tips for independent contractors to know is that any expense related to performing your job could potentially be considered for a tax deduction. Business supplies, travel expenses and insurance all count as qualified business expenses. When filing taxes, your gross income is reduced by those qualified business expenses.
While it is not recommended that anyone creatively prepare a tax return, another one of our important tax tips for independent contractors is to be aware of these commonly overlooked tax deductions: medical expenses, business mileage, homeowner’s insurance, business gift and business travel.
As a means of reducing their tax burden, independent contractors have the option of incorporating their business. One of our other tax tips for independent contractors will help reduce the self-employment tax with the creation of an S-Corporation. The owner of an S-Corporation can pay themselves a salary, and then the independent contractor may only pay income taxes on that amount.
When In Doubt, Don’t Deduct
When preparing tax return expenses, independent contractors should keep in mind that all deductions should be verified by corresponding receipts and documentation. Finally, our tax tips for independent contractors list recommends declaring only deductions that would withstand a potential audit. Creative deductions may save money now, but they could hurt an independent contractor in the long run.
At DeFreitas & Minsky we specialize in all aspects of tax returns on Long Island. If you need help preparing your independent contractor tax return, or would like any more tax tips for independent contractors, don’t hesitate to call DeFreitas & Minsky Certified Public Accountants can help sort everything out. Call us at 516.746.6322 for more information.