At times independent contractors have a hard time going through the tax season. The major thing that you should be aware of is the difference between an employee and an independent contractor. The IRS has made the difference between the two very clear. And this is greatly directed by the existing arrangement that you decide on with your customers or companies that you are working with. The employee and the independent contractor may get their income from the same job. Nevertheless, differences exist between them.
The independent contractors get the chance of managing their time as they want to. They are not restricted in the office for a certain period. They get to work with their own timetable. When compared to employees their freedom and level of flexibility is more. Yet this freedom is not for free. Which is they have to make payment for their health insurance and taxes?
The other difference is that independent contractors have the chance to take a lot more deductions. Employees normally are not capable of writing off mileage. Conversely independent contractors have this privilege. Here are some of the deductions that independent contractors can take advantage off. To start with there is the home office deduction. This is the most ideal deduction that you are capable of taking as an independent contractor. Yet, there is need for you to qualify. This is possible by setting aside space in your apartment or home that will serve as your working space.
The second deduction is referred to as twenty percent deduction. This has been passed not so long ago. In this case twenty percent of the amount you earned in taken the money you are paid. Guidelines exist that you can follow to know if you indeed have qualified.
It is crucial that you maintain the 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. You are going to have to prove your income and expenses in case any questions are asked. It is vital that you have the relevant receipts to match your bank statements. Receipts are essential in a lot of cases.
Make sure that are receipt is kept for each and every transaction made. 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 should be carried out for the money that you earn. It is important that you are with a clean record income. And it must be simple to track and account for.
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