Tax Tips to Aid You As An Independent Contractor
The tax season s not always simple for independent contractors. An employee and an independent contractor have a lot of differences and you need to understand them. The IRS has made the difference between the two very clear. And it really relies on the arrangement that you make with the clients or companies that you work with. An independent contractor and an employee all get paid for doing a similar job. However, under the surface are a number of differences.
The independent contractors get the chance of managing their time as they want to. Their time in the office is not specified. They can work according to their own liking. They are more flexible and have more freedom compared to people that are employed. Yet this freedom is not for free. Which is they have to make payment for their health insurance and taxes?
The other major difference is that contractors are allowed to take more deductions. Writing off mileage is something that employees are not capable of doing. On the other hand, the contractor can. Here are a number of deductions that these contractors are privileged of making. To begin with, there is the home office deduction. This is the most ideal deduction that you are capable of taking as an independent contractor. Yet, there is need for you to qualify. You can do this when you create some room for an office in your house.
Secondly there is the twenty percent deduction. This is a new deduction that has been set by the Tax Cuts and Jobs Act. In this case twenty percent of the amount you earned in taken the money you are paid. Guidelines exist that you can follow to know if you indeed have qualified.
It is important that you keep impeccable records. The IRS has taken the initiative of auditing a small percentage. However you are supposed to be well prepared in case you are asked for more information. You are going to have to prove your income and expenses in case any questions are asked. It is vital that you have the relevant receipts to match your bank statements. Incall cases receipts are essential.
When any transaction is made see to it that you properly keep the receipt. A good example is maintaining a mileage book when writing off any mileage. Also, the receipts and documentation inclusive should be well maintained. The same applies to the income that you get. It is important that you are with a clean record income. And it must be simple to track and account for.