Tax Deductions and advice for 1099-Misc Independent Contractors

Are Health Insurance Premiums Tax Deductible - Tax Deductions and advice for 1099-Misc Independent Contractors

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A few coarse occupations that receive a 1099-Misc are sub contractors, real estate brokers and guarnatee agents. Independent contractors who have their income reported on a 1099-Misc are thought about self-employed by the Irs, and are responsible for paying their own taxes. To put it most simply, none of their taxes are withheld during the year.

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Are Health Insurance Premiums Tax Deductible

This can be a double-edged sword for many independent contractors. For those with adequate tax knowledge, or access to a grand tax professional, receiving a 1099 can really be a good thing. But for those who are new to an career that reports income via the 1099, or believe they are a turbo tax expert, receiving a 1099-Misc can be a disaster at tax time.

In most circumstances, an employee's (someone who receives a W2 by January 31) net wages have already had federal, state and payroll taxes withheld. Employee's are not totally responsible for their own taxes, but an independent contractor is. The first thing that the self-employed has to do is pay their taxes quarterly. The total estimate you have to pay regular is the smaller of these two numbers, whether 100 percent of last year's tax liability, or 90% of the current year's tax liability. Failure to pay in adequate throughout the tax year will supervene in an estimated tax penalty on your tax return.

The second and most crucial part of being an independent contractor is tracking your business expenses during the year. Taxpayers who receive 1099's are allowed to deduct their expenses from business activities just like a business owner can, in fact, some small business owners and independent contractors use the same form to report their income, a schedule C.

The most leading cost for independent contractors to keep track of are their auto expenses-namely business miles driven. The Irs allows taxpayers to deduct 50 cents for every business mile driven during 2010, the acceptable mileage rate cannot be taken in addition to actual car expenses like gas, repairs, depreciation, and insurance. Independent contractors must conclude whether or not they want to use actual expenses, or the acceptable mileage rate.

Something else that an independent contractor must take in to notice in regards to mileage is the definition of business miles, not all miles driven are thought about business miles. Miles driven from home to your office are thought about commuting miles, not business miles. Miles driven from the office to your work site or appointment are thought about business miles. And obviously miles that your drive while not at work are thought about personal miles and cannot be deducted.
For those who conclude to use the actual expenses method, your deduction can be figured by totaling up your auto expenses and multiplying that estimate by the ratio of business miles driven. For example, if you drove 30,000 miles for the year, and half of them were business miles, then you could take half of your auto cost for the year as a deduction.

Other expenses that can be deducted from income for the self-employed include:

• Advertising expenses
• Office supplies
• Cost of uniforms/Equipment
• Utilities
• Insurance,
• Interest paid
• Legal/professional services
• Meals and Entertainment Expenses
• Lodging expenses

One last topic that independent contractors need to consider is the home office deduction. If you use a measure of your home exclusively for business purposes, you can take the deduction. This will enable you to not only deduct a measure of your living expenses, together with rent/mortgage interest, insurance, taxes and utilities. The home office deduction will also allow you to turn some of your commuting miles in to business miles.

You can include commuting miles as business miles if you are a small business owner or self-employed person, and you have two offices or work locations: one face the home, and one inside the home. You will need to fill out form 8832 in addition to a schedule C to correctly file the home office deduction.

The best way for small business owners and independent contractors to save money at tax time is to understand what they are allowed to deduct. An cost and deduction using an excel spreadsheet or QuickBooks is a good way to get started.

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