Tax Tips to Aid You As An Independent Contractor
Sometimes getting through a tax season is not always easy for independent contractors. The big thing that you should understand is the difference that exists between independent contractors and employees. 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. Nevertheless, differences exist between them.
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. That is they are in charge of paying for their own taxes and health insurance.
The other difference is that independent contractors have the chance to take a lot more deductions. Employees have no chance of writing off mileage. On the other hand, the contractor can. Here are a number of deductions that these contractors are privileged of making. Home office deduction is a good example to start with. This is considered as a good deduction that you can tailor for your own benefit. However, you need to qualify for it. You can do this when you create some room for an office in your house.
The second deduction is referred to as twenty percent deduction. This has been passed not so long ago. You are capable of deducting twenty percent for the amount you earn in form of a pass-through income. There are a number of guidelines that you are supposed to check that are going to determine whether you qualify or not.
It is crucial that you maintain the impeccable records. There is a small percentage that is normally audited by the IRS. However you are supposed to be well prepared in case you are asked for more information. When questions you should be in a position of giving the evidence that shows the validity of your income and expenses. It is not enough to just look at your bank statements and makes use of that as proof. Receipts are essential in a lot of cases.
When any transaction is made see to it that you properly keep the receipt. For instance if you intend to write off transportation cost or car mileage, ensure that you keep a mileage book. Additionally, there is a need to keep the receipts as well as documentation. The same applies to the income that you get. A clean record is something that you must have. And it must be simple to track and account for.