Independent contractors are required to file and pay taxes on all income earned from self-employment. To offset your tax burden, you can write off certain business expenses. Be sure to keep all of your receipts for business supplies and services. If you have a home office, keep records of your housing and utility bills, as some of these might qualify for deductions that can lower your tax burden.
Home Office Deductions
If you work out of your home, you might be able to qualify for the home office deduction. The space you claim as a home office must be used regularly and exclusively for your business to qualify. The deduction allows you to claim a percentage of your home's upkeep costs, including rent or depreciation, property tax, mortgage interest, upgrades to the office and utilities. Improvements or repairs made to the home might also be deductible.
The costs of operating your business can typically be deducted from your tax liability. Office supplies, business insurance, professional licenses, professional organization memberships, equipment, software, legal fees, professional services and marketing materials are all examples of valid operational costs. Travel expenses, meals with employees or clients, and some types of business-related entertainment costs may be deductible as well.
Self-employment Income Tax
An independent contractor who does not have tax withheld from a payroll check will be required to pay self-employment tax. This tax consists of Social Security and Medicare taxes, which are categorized as business expenses. You can deduct the employer portion of this tax when calculating your adjusted gross income.
Self-Employment Health Insurance
The Small Business Jobs Act provides a deduction of the cost of health insurance premiums for income tax purposes for self-employed individuals. If you do not have access to health benefits through an employer-subsidized health plan, you can claim the premium costs for you, your spouse and any dependents.
- tax time image by Gale Distler from Fotolia.com