Guide for Independent Tax Contractors
The tax season s not always simple for independent contractors. The major thing that you should be aware of is the difference between an employee and an independent contractor. 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. Independent contractors and employees might be paid for completing the same job. Yet beneath the surface are differences.
Independent contractors are in control of their time. They do not have to be at an office for a specific duration as employees do. They can work according to their own liking. When compared to employees their freedom and level of flexibility is more. This freedom nevertheless has a price. This freedom comes at the expense of catering for their health insurance and taxes.
Also what makes independent contractors different is that the deductions that they are permitted to make are more compared to that of employed people. Employees have no chance of writing off mileage. Conversely, this is something that independent contractors are permitted to do. Here are a number of deductions that these contractors are privileged of making. To start with there is the home office deduction. This is the most ideal deduction that you are capable of taking as an independent contractor. Nevertheless, it does not come easily, you must qualify. This is possible by setting aside space in your apartment or home that will serve as your working space.
The other deduction is known as a twenty percent deduction. This is a recent deduction by the Tax Cuts and Jobs Acts. You are capable of deducting twenty percent for the amount you earn in form of a pass-through income. Guidelines exist that you can follow to know if you indeed have qualified.
It is vital that impeccable records are kept. The IRS normally audits a small taxpayers percentage. Yet when asked for more details you must be well prepared. There will be a need for you to give evidence of your expenses and income upon being questioned. Your bank statements should be backed up by receipts. Incall cases receipts are essential.
Make sure that are receipt is kept for each and every transaction made. A good example is maintaining a mileage book when writing off any mileage. Additionally, there is a need to keep the receipts as well as documentation. The same applies to the income that you get. You will need to have a clean income record. And proving and tracking it should not be difficult.