The tax time deductions you need to succeed as a self-employed independent contractor

Note: Please consult a tax professional for questions about your unique tax situation. While I am here to help, I am not a credentialed tax advisor. If sharing comments or questions pertaining to your tax situation, be very careful not to leave sensitive, private information.

Earning money (especially from home) can be a great blessing to accomplish all the things you’d love to do…until tax time that is. Business taxes can seem complicated to many and as an independent contractor come tax time there are advantages you can use to keep that tax bill in check. By planning ahead and keeping your expenses documented you can be sure to have the information on hand  to deduct everything you can to make your profit seem smaller and as a result reduce the amount you would have to pay in taxes.

Tax tips for work from home success

 

 

Employee or Independent Contractor.. that is the question

You may be asking yourself: But wait, I don’t have a “company”…Am I really “self-employed”? Does this even apply to me?

According to the IRS, “generally, you are self-employed if any of the following apply to you.

 

In short, unless you are getting a W-2 from each of the work from home opportunities you’ve done work for, you are likely an independent contractor and will need to pay some self-employment tax. Enter the wonderful, the amazing, the oh-that’s-cool: business expense. These beauties will offset the money you earned and help the IRS understand how much profit you actually made and thus reduce the amount you can be taxed on. Essentially, the less you actually made, the less they tax, the less you pay!

Here are some other important points to keep in mind:

  • If the companies you worked with send a 1099- MISC you’d be considered an independent contractor. If the company you work with gives you a W-2, you are likely their employee and you would list expenses on a Schedule A under “Job-related expenses”. If that’s the case and you aren’t getting any 1099-MISC forms for being an independent contractor, you’ll go here to look at what you can deduct on Schedule A under “job-related expenses”.
  • Always contact the company/companies you worked with to be sure if you are an independent contractor or an employee.
  • Keep track of everything you spend money on that benefits you as pertaining to working from home. Keep receipts in a secure place that will be easy to find at tax time.
  • Take screen shots, print out payments you receive or consider getting a subscription to Quickbooks (they even offer a free 30-day trial!) to help you keep track of income and expenses.

Expenses you can deduct!

 (courtesy of Intuit’s Quickbooks):

Type

Deductible Expenses

Non-Deductible Expenses

Advertising (Line 8)Any materials for marketing your business (e.g. flyers, signage, ads, branded promo items, events or trade shows) and the cost of developing those (e.g. agency or designer costs).Office holiday parties, gifts (e.g. books) that aren’t branded (use “Other Expenses”)
Business Insurance (Line 15)Insurance intended to protect your business (e.g. fire, theft, flood, property, malpractice, errors and omission, general liability, malpractice, workers’ compensation).Health insurance, auto insurance (use “Car Expenses” or Add Mileage), disability insurance
Car Expenses (Line 9)The business portion of your actual car expenses (e.g. gas, insurance, registration, repairs and maintenance) or public transit expenses (e.g. buses) if you use local transportation.Expenses (other than Parking/Tolls) if you use the standard mileage rate (use Add Mileage)
Depreciation and Section 179 (Line 13)Depreciation expense on business assets (e.g. computers, office equipment, tools, furniture, cars). Note: The IRS requires you to use Form 4562 to claim these deductions.Car depreciation if using the standard mileage rate (use Add Mileage)
Home Office Deduction (Line 30)Expenses related to a home office (e.g. business portion of rent, utilities, repairs, insurance, mortgage interest). You’ll need to fill out a Form 8829, unless you use the simplified method.Expenses if you use the simplified method (it includes all home office expenses)
Meals / Entertainment (Line 24b)Meals or entertainment that you had with a client and during which you engaged in business discussions, or those incurred while traveling on an out-of-town business trip.Meals for yourself (e.g. on lunch breaks); dues for athletic clubs
Office Expenses (Line 18)Office expenses (e.g. cleaning services for office, general office maintenance) that don’t have a separate category.Home office costs (use “Home Office”), rent (use “Rent”), utilities (use “Utilities”)
Supplies (Line 22)Any supplies that you use and replace (e.g. cleaning supplies if you clean homes, office supplies like pens or printer ink, hot/cold bags if you do delivery).Office decorations and some other office expenses (use “Office Expenses”)
Travel (Line 24a)Travel costs related to business trips (e.g. lodging, airfare or rental cars, local transportation). The travel must be overnight, away from your residence and primarily for business.Personal costs while traveling (e.g. dinner with a friend), meals while traveling (use “Meals”)
Other Expenses (Line 27a)Any other business expenses that are ordinary and necessary (e.g. education to improve skills for your job, banking fees, association dues, business gifts, industry magazines).Expenses with their own separate categories, expenses that aren’t ordinary and necessary

Less Common Expenses for the Self-Employed

You might encounter some of these expenses in your line of work, but they’re generally less common.

 

Type

 

Deductible Expenses

 

Non-Deductible Expenses

Commissions and Fees (Line 10)Commissions/fees paid to nonemployees to generate revenue (e.g. agent fees). Many companies (e.g. Uber, Airbnb) remove their cut before paying you, so don’t include those.City license fees (use “Taxes/Licenses”), commissions paid to employees (use “Wages”)
Contract Labor (Line 11)Any payments made to independent contractors (e.g. a contracted web developer).Wages paid to employees (use “Wages”), lawyer/professional fees (use “Legal Services”)
Depletion (Line 12)If you’re in the business of mining natural resources (e.g. oil wells, natural gas, logging), you can write off the use of those resources. (We suggest getting an accountant if this applies.)Gas for driving (use “Car Expenses” or Add Mileage), home/office utilities (use “Utilities”)
Employee Benefit Programs (Line 14)Costs related to benefits you provide your employees (e.g. health or life insurance, education assistance, accident or liability insurance).Your own health/retirement benefits (deductible on Form 1040 Line 28 and 29)
Employee Wages (Line 26)Wages paid to employees (e.g. salaries, commissions, bonuses).Employee benefits (use “Employee Benefits”); payments to yourself
Interest (mortgage) (Line 16a)Interest paid on a mortgage for property used for business, other than your primary home. You may receive a Form 1098 from the lender if you pay mortgage interest during the year.Interest on primary home (use “Home Office Deduction” and Form 8829 if used in business)
Interest (car, other) (Line 16b)Other types of interest (e.g. credit cards, business lines of credit, interest on car payments). You can only write off the portion related to business, not the portion related to personal use.Interest on personal loans, home office mortgage interest (use “Home Office Deduction”)
Legal / Professional Services (Line 17)Professional fees related to your business (e.g. attorneys, tax preparers, accountants, other professionals).Services provided by your employees (use “Employee Wages”)
Pension Plans (Line 19)Contributions you make to your employees’ retirement plans (e.g. 401(k), Keogh plans, profit-sharing plans).Contributions made to your own plan (use Form 1040 Line 28)
Rent or Lease (vehicles, equipment) (Line 20a)Rent or lease payments on business property not owned by you (e.g. machines, equipment, vehicles).Car lease payments if you use the standard mileage rate (use Add Mileage)
Rent or Lease (other business property) (Line 20b)Rent or lease payments on items that aren’t vehicles or equipment (e.g. office or land rent), including any government taxes on those items.Rent for home office (use “Home Office”), rent for trade show booths (use “Advertising”)
Repairs and Maintenance (Line 21)Repairs or maintenance on business machines, equipment or offices (e.g. repainting office, fixing computer/laptop, replacing worn parts on equipment).Car-related repairs (use “Car Expenses”), significant improvements (use “Depreciation”)
Taxes/Licenses (Line 23)Various business taxes (e.g. your share of FICA if you have employees) or licenses (e.g. state or local licenses, or licenses required for your business type).Self-employment tax or income tax (see section below)
Utilities (Line 25)Utilities related to your office (e.g. electric, gas, garbage, water).Utilities for your house (use “Home Office”)

 

Note: Please consult a tax professional for questions about your unique tax situation. While I am here to help, I am not a credentialed tax advisor. If sharing comments or questions pertaining to your tax situation, be very careful not to leave sensitive, private information.