Top 7 Independent Contractor Tax Deductions for 2017

Posted 2 years ago in Small Business Tips
by Taylor Larsen

We’re nearly a whole year away from tax season, but it’s never too early to be prepared, right? Let’s get a jump start on taxes, and more importantly, letting people know what receipts they need to hold on to. We’ve come up with a list of the seven most important tax deductions for independent contractors to use in 2017.

1. Advertising and Operations Expenses

Think advertising expenses are just for the big companies? Think again! Small businesses need to use these available deductions to keep taxes low. Promoting your business on social media channels, and having business cards printed are both examples of common expenses that fall into the advertising category.

Operations expenses are common for small businesses in today’s digital arena. Hosting fees for a business website, and the cost of other internet-based services (even paying for the internet itself) count as operations expenses.

2. Equipment and material expenses

For the typical freelancer, equipment expenses include the hardware needed to finish a job. A computer is an obvious one, but less obvious could be the internet router and modem. You can also categorize the printer and paper as either equipment or material expenses.

Some independent contractors, like painters or others involved in the construction industry, have spend a lot of money buying supplies to keep the business running. These contractors will need to calculate the cost of goods sold to write off this inventory expense.

3. Home Office Lease Expenses

Business owners can claim a tax deduction on offices, even a home office, if it is for the regular and exclusive use of the business. It can be a whole room of the house or even a small portion of a garage, as long as that area is used exclusively for business.

You can claim the portion of your home’s square footage that you use to conduct your business. You may not include other parts of the house that get a large amount of shared traffic, like your living room or the kitchen table, as that blurs the line between home and business.

4. Meals and entertainment expenses

Sorry readers, this part isn’t as juicy as we would like it to be (pun intended). But it certainly has enough rules and exceptions to feed an entire family reunion with tax jargon.

Entertainment of clients through meals is only classified as a tax deduction up to 50 percent. And it has to be associated with a trade or business, and take place directly before or after a substantial business discussion. In other words, it must have a clear business purpose and happen around when discussion took place. Treating a client for hot dogs at a baseball game where you “talk shop” won’t cut it.

Conventions and things done away from your home office are another way to deduct from your taxable earnings. However, you shouldn’t double-dip. If a contractor participates in a conference, they may not count it as both a travel expense and an advertising expense.

As this part is actually quite murky, especially for the self-employed, please consult this web page for additional information from the IRS regarding meal and entertainment expenses.

5. Business transportation and travel expenses

Let’s get something out of the way. You cannot deduct expenses from commuting to or from work.

However, the IRS gives self-employed people two ways of tracking and deducting vehicle expenses. All your vehicle costs (gas, repairs, maintenance, etc.), or your business miles times $0.54 for 2016 (IRS mileage rate). Either way, make sure to keep track of all miles and receipts.

6. Child care expenses

Independent contractors with kids should know that they can use child and dependent care tax credit. The credit repays what you spend on childcare while working. This includes daycare, babysitters, summer day camp (not overnight), and more.

These types of expenses for children under 13 and disabled adults all qualify toward the maximum of $3,000 coverable per dependent. However, the tax filer will only recoup a maximum of 35 percent of that money.

7. Insurance expenses

Health insurance premiums are a big expense. Health insurance is required in the US due to the Affordable Care Act. So, independent contractors can use this deduction to help recoup some of the money spent on medical care premiums. However, tax deductions may not be greater than the income collected from the business (personal salary).

These tax deductions can include things like liability insurance or malpractice for those with riskier self-employment. You can also deduct car insurance, but only if the car is actually used for day-to-day business. Just make sure to keep a paper trail to show the IRS that you are playing fair. Much like travel expenses listed above, independent contractors must be able to prove that maintaining the car is a part of your business.

Even if most of it seems trivial, there are many available tax breaks for independent contractors. You can easily save receipts with scanners and smartphones, too. Keeping it organized is the best way to stay on top of taxes and away from IRS audits.

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