At times independent contractors have a hard time going through the tax season. The major thing that you should be aware of is the difference between an employee and an independent contractor. Thanks to the IRS the difference is easily understandable. And this is greatly directed by the existing arrangement that you decide on with your customers or companies that you are working with. Independent contractors and employees might be paid for completing the same job. Yet beneath the surface are differences.
You find that independent contractors are in total control of their time. They do not have to be at an office for a specific duration as employees do. They can work according to their own liking. When compared to employees their freedom and level of flexibility is more. Yet this freedom is not for free. This freedom comes at the expense of catering for their health insurance and taxes.
The other major difference is that contractors are allowed to take more deductions. Employees have no chance of writing off mileage. On the other hand, the contractor can. In this post, you will know some of the deduction that an independent contractor can use to their benefits. To begin with, there is the home office deduction. This is the most ideal deduction that you are capable of taking as an independent contractor. Yet, there is need for you to qualify. You can do this when you create some room for an office in your house.
The other deduction is known as a twenty percent deduction. This has been passed not so long ago. In this case twenty percent of the amount you earned in taken the money you are paid. Guidelines exist that you can follow to know if you indeed have qualified.
It is crucial that you maintain the impeccable records. The IRS has taken the initiative of auditing a small percentage. However you are supposed to be well prepared in case you are asked for more information. You are going to have to prove your income and expenses in case any questions are asked. It is not enough to just look at your bank statements and makes use of that as proof. Incall cases receipts are essential.
When any transaction is made see to it that you properly keep the receipt. A good example is maintaining a mileage book when writing off any mileage. Also, the receipts and documentation inclusive should be well maintained. The same applies to the income that you get. A clean record is something that you must have. And proving and tracking it should not be difficult.
Smart Ideas: Revisited
Getting Down To Basics with