Contractor Tax Rate
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Tax Preparation Services
Get All Your Home Business Tax Deductions
In any small/home business you definitely have more tax advantages than if you were simply an “independent contractor” or “sole proprietor” claiming the income on your personal 1040 tax return. The tax advantages become substantial when you consider how you can improve the profitability of your home business by filing a separate Schedule C for your business income and declaring all of the deductions you are entitled to.
You may be missing some very important deductions. You must itemize your deductions for your home business operation on a separate schedule just as you would for your personal deductions. Knowing which deductions you are entitled to can save your home business hundreds of dollars a year.
Here is some background information on how your income tax amount is arrived at by the IRS.
The U.S. taxation code states that almost all income is subject to federal income tax. The way that you, as the owner of your home business, arrive at the final amount of income tax is as follows:
Gross Income – (All Expenses + Miscellaneous Deductions + Depreciation on Assets) = Taxable Income
Taxable Income x (Your Tax Rate) = Income tax for the fiscal year
Here is a quick definition of the terms in the above taxation equation:
Gross Income: The total of all income for the year after the cost of inventory has been accounted for.
Expenses: All costs of doing business during the fiscal tax year. Examples include payroll, materials, supplies, interest on business loans, etc. To find out if an expense qualifies as a legitimate business expense, consult your accountant or the IRS.
Depreciation: This is a way of spreading out the deductibility of an asset over a period of more than one year. This is done for assets like real estate, equipment and other assets with a long economic life. This method of taxation write-off has certain advantages. Be sure to talk to your accountant regarding proper depreciation rules. The IRS has different depreciation schedules for different business property. These rules are subject to change by Congress and the IRS.
Miscellaneous Deductions: This is an often misunderstood and overlooked way to save a lot of money on taxes. Remember that these types of expenses must be totaled up and declared on a separate schedule of your income tax forms. Always track your expenses and be sure to save at least one copy of every deduction. You will be asked for proof of every transaction that is declared as a deduction if you are audited by the IRS!
Here is a list of some of the most common business related expenses you can deduct from your income taxes:
1. Airfare
2. Auto Expenses
3. Books and Magazines
4. Educational Expenses
5. Home Office Space* + a portion of Utilities, Telephone, and Maintenance Costs
6. Office Furniture
7. Cleaning Expenses
8. Meals with Business Clients
9. Laundry Expenses (when traveling)
10. Advertising
11. Bank Fees and Interest
12. Licenses and Regulatory Fees
* If you own your home you must use the IRS depreciation rules to determine this deduction. If you rent, you may also deduct a portion of your rent.
Check IRS Publication 535 or contact me to schedule a consultation to find out if you can deduct any or all of the above.
As you can see, there are many deductions that are allowable for your home business. The best way to get more information on tax deductions and related information on income taxes is to go online to http://www.irs.gov. There you will find a helpful search engine containing thousands of government publications that you can research and print out if you need to.
Now you have a good idea of the deductions you are entitled to take. So do your research, keep track of your expenses and take all of the deductions you can for maximum profit every year.
About the Author
Detail-oriented Bookkeeper / Accounting Assistant with extensive computer training; proven expertise in office management and administrative assistance; a wide array of experience with personal computers; excellent organizational, interpersonal, and communications skills. Excels in demanding work environments through effective prioritization; learns new skills and tasks quickly with impressive results. Outstanding problem solving, independent judgment and adaptability skills. Willing to travel.
independent contractor,tax questions?
My husband is active military so they provide a free tax service. Do you think they can handle a tax return of his income(military), my income as regular employee, and as independent contractor OR do I need to pay someone? Can I write off cleaning supplies expenses(I’m a housekeeper), miles driven? I did not have an income at all last year so I don’t think I pay estimated taxes. Should I set 15.3% self-employed taxes in a separate account as to keep track of what I will end up having to pay?Do I need liability insurance or state tax ID? Originally worked for $15/hour for the property mgt. company, but now the realtor is negotiating flat-rate estimate from homeowners like $100 for 2 bedroom or $250 for 4 bedroom. Is this good money? Am I covering all my bases? Any help appreciated as I have never worked as independent contractor. Thanks!
You will be filing form 1040 with Schedule C – Profit or Loss from Business and Schedule SE for self-employment tax. The income and withholding taxes from your husband’s military and yourself as regular employee are based on the w-2 forms you receive. The preparation of the Schedule C will accommodate your self-employed income and expenses. You may deduct expenses like cleaning supplies, miles driven (choice of standard mileage or actual auto expense including depreciation of your car), and other expenses which you spent on “production of your self-employed income.” If you bought cleaning equipment, you can deduct it also. Make sure you keep all receipts on expenses, and miles driven to and from your place of work. Schedule SE is prepared after Sch. C has been completed to calculate the self-employment tax.
If military provides a free tax service, you have to supply the military tax preparer the w-2’s plus income & expense schedule of your self-employed business along with the receipt, provided that the military has internal tax preparers to prepare all military peoples tax returns. It could be that the military reimburse you for the tax preparation fee and have you select your own tax preparer. You have to find out the military’s procedure.
As for the flat fee on the house cleaning, it’s reasonable (I live in CA) since my neighbors are paying similar amounts to outside house cleaning services. But it depends on the city you live since the cost of living is different from city to city, state to state.
Contractor Pensions
In by gone days all a contractor had to do was give the customer good quality and good service and he/she would be set. Then set back and let your customers do your selling for you. They would tell a friend and then that friend would tell a friend. Your phone would be ringing off the hook. I remember as an Architectural designer some days I would have up to four people wanting to schedule appointments for designs. Those days are long gone! But Fear Not! Click Here For Help
