John McCarthy Construction Blog

Contractor Tax Write Offs

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What is an Independent Contractor (AKA a 1099 Contractor), and How Does It Compare to Being an Employee?

The term independent contractor refers to one who provides their services and work to a business on a contractual basis. These contractors are not actual employees of the business they serve, although they do receive their income from their respective business. Such workers are also known as 1099 contractors, the number “1099″ making reference to the IRS form filled out where an independent contractor states their income from a particular business each year (for tax purposes). Being self-employed as 1099 contractor can offer oneself great flexibility, although there are some specific drawbacks to being self-employed.

Advantages and disadvantages of being self-employed

Both employees and independents alike are required to pay into Social Security. While an employer may withhold a percentage of taxes for their employees, independent contractors have to take responsibility for the entirety of such tax installments. As an independent contractor employee, one must make installments for themselves rather than having their employer do it for them. There are certain deductions, however, that an independent can make. For this reason, it’s important for any 1099 contractors to keep track of their expenses in regard to their work. Anything purchased by the contractor for business purposes has the potential to be written off as a business expense. 1099 contractors also have the advantage of not always being tied down to a typical work week, choosing hours that better suit themselves.

There are, however, a number of disadvantages in being your own employee. While ordinary employees may get health insurance or paid vacation, the 1099 most likely does not. There is absolutely no obligation for an employee contractor to offer such benefits to an independent contractor. In addition, 1099 contractors are not protected under the same regulations that cover ordinary employees. For example, Independent contractors are not protected by minimum-wage laws, and therefore could find themselves working below minimum-wage under certain circumstances. Unless specifically laid out in their contract, it’s common to see independent contractors fired without any sort of liability. It’s crucial for those looking into becoming self-employed to avoid such pitfalls the best they can.

The bottom line

Independent contractors exist in a great number of different fields. Whether it’s as a doctor, freelance writer, broker, or handyman, 1099 contractors are all over the business world. Being an independent inevitability requires great responsibility. Finding a good employer, ironing out a good contract, and being familiar with employment laws are just a few steps that must be taken by those looking to become successfully self-employed.

Brent Barnhart is a writer for http://www.ChamberofCommerce.com, the only National Chamber of Commerce.

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1099 Tax Help, Here’s My Situation?

I have worked as an independent contractor on a 1099 status at a company since June. Can anyone help me with my filing situation? What form(s) do I file? Where do I start? Also I need help with tax write-offs/deductions. I know I can get away with a lot working in the music industry, but any strong examples? I have almost $3000 in student loan interest, what about that? Also, with the car mileage thing, can I write-off my miles to/from work? I know its like 48 cents per mile, but 26 miles per day for 6 months months seems like a lot (adds up to like $1600). Any thoughts/tips/hints/suggestions/etc? I have no idea what to do. Anything it seems I’m not understanding correctly? Thanks

You’ll need a form 1040, a schedule C or C-EZ, and a schedule SE. Your income and associated expenses go on the C, then the number from the bottom of that goes on the SE and on the 1040. The number from the end of the SE will also go onto your 1040.

Your miles to and from work are commuting miles and aren’t deductible. But miles driven for business purposes during your workday, or for things like picking up supplies whether during work hours or not, would be deductible.

Student loan interest has nothing to do with your business, but up to $2500 of it can be taken as an adjustment on line 33 of your 1040.

Tax Deduction Tips for Contractors and People Working in the Construction Industry

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