4 Tax deductions for independent contractors
You’ve put a lot of work into becoming an independent contractor. Now it’s time to make sure you take advantage of the tax deductions that come with being your own boss. Just remember, before you claim something as a deduction, make sure you have good records to back it up. The IRS can be a stickler for documentation and wants to see that the money you spent was actually used for business. With that in mind, here are four business-related expenses that can help your bottom line at tax time.
From business cards to websites to ads on social media, the way you promote yourself can be a deductible expense. Do you run Facebook ads to grow your T-shirt business, for instance? Keep track and deduct what you spend on your campaigns. Or maybe you decide to go a little more old school and distribute flyers at a music festival. If so, get ready to deduct the cost of the flyers themselves and any associated design fees. Advertising can be an important part of your overall business strategy, so don’t ignore it as a deduction.
Many independent contractors work out of a home office, which has its own tax advantages. But lately, more and more freelancers are opting for coworking environments where they share space and build friendships with other workers. From 2010 to 2017, the number of coworking spaces in the U.S. rose from less than 300 to more than 4,000. If you’re in that situation, you may be able to deduct the fees you pay. Even better, in some cases you may be able to keep your home office deduction and deduct the cost of joining a coworking space. To be sure, contact a tax professional.
To stay competitive in today’s business climate, self-employed professionals often need to update their skills. Those expenses can be tax deductible as long as the education is related to the job. Many times, independent contractors overlook this potential deduction. But think of it this way: To keep up on best practices, a freelance web developer might need to attend a seminar on how to combat the latest computer viruses. But if that same developer attended a webinar on how to score the best travel deals, it’s probably not going to fly with the IRS. Just remember: If you need it to do your job better, it’s a safer bet for a tax deduction.
Insurance is an important way to protect yourself and your business. It also can lead to hefty deductions. As a self-employed professional, you may be able to deduct premiums for medical, dental, and long-term care insurance. There are some caveats, however, so do your homework before you begin your taxes.
Premiums for business insurance may also be deductible. Experts, such as Harvey I. Bezozi, a certified public accountant and certified financial planner who has worked with small businesses for more than three decades, recommend independent contractors purchase business insurance, of which there are several types.
Are you a freelance journalist writing about the rich and powerful? You probably want to consider insurance that will cover libel and slander. Whatever your field, it’s important to assess the risks to your business and make sure you’re covered. Hiscox offers various types of business insurance to protect independent contractors. And remember: For more detailed information about tax deductions, it’s always important to reach out to a tax professional.