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Tax tips that can help you this season

by Divine Caroline | 1123 views | 0 comments | Rate this now!

I have a full-time job now, but this is the first time I’ve worked for a single company in almost four years; between 2006 and 2009, I was self-employed. When I decided to try freelancing in earnest, I didn’t have even the foggiest notion about the logistics. But practice makes perfect, and over the course of my three years working from home, I figured out how to prioritize my deadlines, how to shift gears on a moment’s notice, and how to stay on top of clients who didn’t pay up in a timely fashion. But by far the most important lesson I learned was that the tax structure for self-employed Americans is entirely different from the one full-timers are accustomed to.

While ponying up roughly 35 percent of your income for the IRS four times a year is about as desirable as a Saturday trip to the DMV, the trade-offs can be significant—that is, if you know all the deductions for which you’re eligible as a contractor. The IRS’s Schedule C tax form, on which sole proprietors report business gains and losses, “doesn’t even begin to hint at all the things that a business can legitimately deduct,” certified public accountant Bernard Kamoroff, who wrote 422 Tax Deductions for Businesses and Self Employed Individuals, 7th Edition, told BusinessWeek. To keep your payments low and your profits high, get in the habit of saving your receipts for every purchase you think might classify as a work expense, starting with these categories.

Itemized Deductions

Home Office Space

According to the National Association for the Self-Employed, this is one of the two write-offs that people overlook most often (the other is vehicle usage for business purposes, detailed below). If you have a home office that you use as your primary place of business, you can write it off. (To determine the exact deduction, measure the square footage of both your home office and your entire house, then divide the former by the latter to calculate what percentage of your living quarters your workspace comprises.) Because many sole proprietors pad this ratio or misrepresent a primarily residential space as a work area, some taxpayers worry that the home-office deduction symbolizes a red flag to the IRS, but if you’re precise with your measurements and honest about your home-office usage, you most likely won’t incur an audit. In addition, if you’re a renter whose home doubles as your place of business, you’re allowed to deduct your rent as a work expense.

Vehicle Usage

The IRS Web site states that people who use their cars or trucks for business are eligible to deduct work-related gas, maintenance, and insurance expenses, parking and toll fees, and the cost of overnight vehicular travel and local transportation. The IRS defines “local transportation” as driving from one workplace to another within your tax home (your regular place of work, including the general geographical area in which you conduct business); visiting clients; driving to offsite business meetings; and traveling to temporary workplaces when you have multiple employers. Keep in mind, however, that these criteria apply only to contract workers, not to full-time employees of a single company for whom these activities fall under the personal-commuting category.