Tax Deduction Consulting: Independent Contractor Deductions Moundsville WV
Horizon Financial Group
Education: Ohio University, BBA FinanceCollege for Financial Planning's CFP Certification Professional Education Program
Years of Experience: 15
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Vealey Financial Services
Years of Experience: 43
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Tax Deduction Consulting: Independent Contractor Deductions
Independent Contractor Tax Deductions
An independent contractor, rather than work for a single employer, works for many clients. Independent contractor tax deductions are the same as a small business.
The IRS uses the words necessary and ordinary to determine which expenses are allowable as a deduction against income on your tax return. Necessary and ordinary can mean just about any expense that is incurred in the conduct of your business and is common to it. It does not have to be essential even, but it can not be lavish.
Among the common tax deductions for independent contractors would be the cost of a home office. In order to claim a portion of your home expenses as a legitimate business deduction, your home must be your principle place of business. If you maintain an office at home, but normally conduct your business at another location, the home office is a luxury and not an essential part of doing your business. If you meet or service clients at your home it is possible to claim a portion of your home expense as a deduction. This is usually done by calculating the square footage of the space devoted entirely to your business and comparing it to the total square footage of the home.
Another deduction common to independent contractors is for meals and entertainment. Again there are certain rules that apply to this deduction. It is necessary that business be conducted at the meal or event in order for it to qualify. In other words, you have to at least talk about business during the course of it. An event where talking would be impossible or difficult such as a theater would not qualify. If your entertainment expense is acceptable, only 50% of it is actually deductible.
Gifts are limited to $25 per recipient per year. If the gift costs less than $4 and has your name embossed on it, it does not count as a gift. The idea of gifts having your name on them, or other information about your services, actually means your gifts could be considered as advertising or promotional expenses. This should eliminate the $25 restriction, but be cautious here because there is a fine line involved between a gift and advertising. The decision might end up depending on the auditor and the situation.
Automobile expense is another common tax deduction used by independent contractors. All mileage driven for business purposes is deductible. There are two ways this can be done. The IRS provides a standard per mile allowance each year or you can keep your actual ex...