![]() Note that if you use office supplies to make or ship a product, add those costs to Cost of Goods Sold instead. You can only claim expenses for supplies you used up during the year (that means you can't stock up on paper clips on December 31). Office supplies: You can fully deduct costs of office supplies such as pens, paper, sticky notes, and other stationery used to run your business. Record home office expenses on Line 30 of your Schedule C.įurther reading: IRS Publication 587 (2021), Business Use of Your Home Office expenses ![]() ![]() The maximum tax deduction under the simplified method is $1,500 per year. Rather than detailing all expenses, you can claim a standard deduction of $5 per square foot of the home office part of your home. Simplified method: If your home office space is under 300 square feet, you can use the IRS's simplified calculation. To claim this deduction, complete IRS Form 8829 (Expenses for Business Use of Your Home) and attach it to your Schedule C. Standard method: You can calculate the home office deduction by determining the percentage of the square footage the office occupies out of your home's total area. Run your costs through both of them and use whatever scenario gives you a higher deduction you can claim. You can choose between two methods of calculating the home office tax write-offs. How to calculate your home office deduction? As this is considered a place of business, you can write off a portion of your mortgage interest, rent, real estate or property taxes, security system, and homeowner's land insurance expenses related to a dedicated space you keep for for business purposes. Independent contractors and many self-employed people often work from their home offices. Here are some of the most common tax breaks for contractors: Home office expenses Business tax deductions: A detailed breakdown Collect call records, usage logs, GPS logs, and other forms of evidence to prove a legitimate business use. For example, if you use a cell phone for business use 80% of the time and for personal use 20% of the time, 80% of the phone cost could be deductible for tax purposes.Ĭlaiming deductions for items with mixed personal and business use will require careful record-keeping. This might be done on a usage or a time basis. An easy trick to help keep track of business expenses is to dedicate a single credit card or bank account for business transactions.įor expenses where you use something partly for business and partly for personal use, you can deduct the proportion of the cost that is used for business. Make sure to avoid deducting personal, living, or family expenses. Personal vs business expenses: what to keep in mindīecause the line between personal and professional life can overlap a lot for independent contractors, making a clean separation between personal and business expenses is especially important. The good news is that you can claim tax deductions on several expenses that are considered to be business operating costs-one of the biggest benefits of self-employment. Unlike full-time employees whose income, social security, and Medicare taxes are automatically deducted from their salaries, you need to pay these taxes from your generated self-employment income. The current rate is 15.3% applied on your net earnings. ![]() Self-employment taxes: taxes that consist of social security tax and Medicare tax.Income taxes: the tax that everyone pays, calculated based on how much you earned.In the US, self-employed workers (such as independent contractors and freelancers) are required to pay: Consult with a tax advisor or ask an accountant or CPA for help. Quick recap: What taxes do independent contractors pay? Knowing which costs can and can’t be claimed as a deduction will help keep your tax bill to a minimum.ĭisclaimer: This article is for informational purposes and should not be considered tax advice. By lowering your taxable income, the tax rate applies to a lower figure, which results in a smaller tax bill. Independent contractors and self-employed workers can make use of tax deductions to reduce how much tax you pay.Ī deduction is a qualifying business expense that can be used to lower your taxable income.
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