Business Tax Preparation for Independent Contractors

Posted on April 19, 2016

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Deductions You May be Missing in Your Business Tax Preparation

business tax preparationAs a self-employed contractor, you may find that the freedom you longed for in running your own business was quickly replaced by the realization that you are now working at all hours, trying to juggle all of the roles you fill. However, there are some great benefits to being your own boss, and when it comes to business tax preparation, there may be a few perks you haven’t heard about.

As you start thinking about getting organized for next year’s tax return, here are some deductions a self-employed contractor should keep in mind for business tax preparation:

Deduction for home office use: If you work out of your home, you can deduct qualified expenses on your tax return. The important thing to note is that your home office can’t be a kitchen table where you occasionally sit with a laptop or open bills. The deduction is for a space in your home that is dedicated to being used as an office space.

The deduction can include a portion of your utilities and mortgage cost for the space used, as a percentage of your overall home costs. Even home insurance and property taxes can be deducted.

Travel and entertainment expenses: If you are driving to meet with clients, don’t forget to record your mileage. On your tax return, you can take a standard cents-per-mile fuel and maintenance deduction, or you can keep track of your maintenance and fuel expenses and deduct it on your tax return. If you use the same vehicle for personal use, too, be diligent about recording the miles you travel for work so that you don’t miss out on this deduction.

If you take clients to meals or entertainment, and the sole purpose of the outing is for business, you can deduct 50 percent of the cost on your tax return.

Insurance and taxes: You can deduct the cost of your health insurance, as well as the cost of your self-employment taxes on your tax return. If you contribute to a retirement plan, you can deduct up to $5,000 from your taxable income on your tax return. This is a great way to reduce the amount of taxes you’ll owe, not to mention making an investment in your retirement savings, which is often hard to commit to when you are working to grow a business.

Business expenses: This one might seem obvious, but a lot of independent contractors pay too much in taxes because they don’t carefully record their expenses. Keeping accurate records for business tax preparation includes not only your big purchases for inventory and supplies, but also small cash purchases. It’s easy for small expenses to add up, so don’t forget to record every last item.

AccuBiz owner Bert Doerhoff, CPA, works with many clients that are self-employed contractors. If you have questions about which deductions apply to your situation, or if you want more information about business tax preparation, call AccuBiz for an appointment.

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Posted in: Bookkeeping