With tax season wrapping up, you may be wondering if you did everything correctly and took all the deductions you were eligible to take. Independent contractors are some of the most considerate when it comes to saving money and staying frugal, and tax time is no exception.
That’s why tax write offs are especially important to an independent contractor.
Whether you had to deal with startup costs, buy office furniture, or build your website, these types of expenses are important when it comes to tax deductions. You had to spend the money to keep your business running, and the good news is, much of it could be written off on your taxes.
10 Simple Tax Deductions for Independent Contractors
What types of expense write offs could you include when it comes to your business? Here are 10 simple tax deductions for independent contractors.
The home office
You probably picked a room in your house to be your home office and took the time to set it up for business and decorate.
When working from home, it’s important that you have an office to get the job done. Your home office is an important and tricky deduction because in order to deduct it, you must use it solely to do your work and it can’t be used for any personal reasons, according to the IRS.
You can deduct some of your home and utility expenses and the cost of new equipment in your home office. Save a ton of money just by measuring the square feet of space you used total as your home office, divide that amount by the square footage of the home, and then use that percentage to determine how much home office space you can claim in regards to your rent, interest on mortgage, utilities, insurance, HOA fees, and more.
A home office is no good without office equipment. Independent contractors can deduct their office equipment costs, including:
- Fax machines
- Home office furniture
Most people take the full deduction at 100% up-front using depreciation over a course of five years, or deduction 179 when the business is profitable.
Successful companies have to run a website, and that costs money to design, create, and develop. This would be treated like computer software in the comparable cost of creating it. If you developed it in-house, your costs can be deducted on the year that you actually accrued costs for the development.
If there are developmental costs unrelated to software, those will be deductible over the life of the expense. Normal business expenses like updating, new additions, and maintenance can all be deducted when they occurred, and if you spend money on content you can deduct it as an advertisement cost.
Do you use a cell phone for business purposes? You probably do if you are self-employed.
You can claim as much as you use, so you could deduct 50% if your use is 50% on business matters. If you’re not sure, ask for an itemized bill to measure business vs. personal calls and texts in order to prove it to the IRS in the event that it’s needed. You could always get a second phone in the future to keep track of business use.
Everybody needs help at one point or another, whether it’s financial counseling, legal services, or other professional services. You can fully deduct these on your taxes if you used any professional, legal or financial services.
- Consulting sessions
- Legal consultations and fees
- Accountant services
- Investment analysis, etc.
Do you pay for association fees like job boards or magazines for your business? Any association fees can be deducted in full when they relate to the business, such as membership fees for the Better Business Bureau.
Did you take any classes, attend seminars, or enroll in ongoing education to enhance your business? If you take any courses that improve your skills within your current employment, you can deduct it as long as it was related to your business.
Credit card interest
You probably didn’t know that interest charges on your business purchases can be deducted! How exciting that those annoying interest charges related to your loans or credit cards can be deducted.
The trick is to keep really good records showing what you borrowed money for within your business so that you can get help with the interest charges.
Don’t forget to deduct any extras like your software, advertising, office supplies, and even postage. Just because you don’t mail very often or you only pick up a few packs of pens and printer paper on occasion doesn’t mean it’s not worth mentioning.
Your software and computer accessories will all start to add up. Your coffee table and chairs for clients to use when they stop in are all deductible. Any repairs or improvements to your work space can also be deducted.
General startup costs
Finally, your general startup costs are all deductible because self-employed startups really need it. You can deduct up to $5k your first year of business and any remaining from there can be done over the next 15 years.
These are the 10 areas that independent contractors need to focus on in order to make sure they are deducting anything they can during tax season.