The tax season s not always simple for independent contractors. An employee and an independent contractor have a lot of differences and you need to understand them. Thanks to the IRS the difference is easily understandable. And it really relies on the arrangement that you make with the clients or companies that you work with. An independent contractor and an employee all get paid for doing a similar job. Yet beneath the surface are differences.
The independent contractors get the chance of managing their time as they want to. Their time in the office is not specified. They normally work on the schedule that they have set for themselves. They are more flexible and have more freedom compared to people that are employed. This freedom nevertheless has a price. This freedom comes at the expense of catering for their health insurance and taxes.
Also what makes independent contractors different is that the deductions that they are permitted to make are more compared to that of employed people. Writing off mileage is something that employees are not capable of doing. On the other hand, the contractor can. Here are a number of deductions that these contractors are privileged of making. Home office deduction is a good example to start with. This is considered as a good deduction that you can tailor for your own benefit. However, you need to qualify for it. You qualify by designating some space specifically for an office.
The second deduction is referred to as twenty percent deduction. This has been passed not so long ago. Here twenty percent of your income is deducted. Guidelines exist that you can follow to know if you indeed have qualified.
It is important that you keep impeccable records. There is a small percentage that is normally audited by the IRS. See to it that you have information with you just in case you are asked for it. When questions you should be in a position of giving the evidence that shows the validity of your income and expenses. It is vital that you have the relevant receipts to match your bank statements. Receipts are needed for everything.
You need to keep the receipts for all transactions that you make. For example, you must and should have a mileage book for recording any mileages that you write off or may cost for transportation. To add to that save the documentation and receipts. The same applies to the income that you get. You will need to have a clean income record. And it must be simple to track and account for.
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