We need to figure out many things to save money when tax season comes. So, in simple words, we call these tax deductions. Thus, these are the gold for people who run their businesses. People run different types of business like some are independent contractors, and a few may be related to the tech. So, if you own anything like this, it’s vital to understand the tax mechanism. We start with the following:
What are the tax deductions for independent contractors?
When you work for yourself, then it is termed as self-employed. But in the IRS document, you are working as a business. So, if you are a business, you should deduct a reasonable amount as tax deductions to meet the business-related expenses. We all know that we need to fill up form-1099 while filing the tax returns.
Professions that we can include in IC:
The IRS has defined the term independent contractors. So, there are the following professions that are included in the list:
- Rideshare drivers like UBER, & Lyft, etc.
- House cleaners
- Construction workers
If you are self-employed and want to submit tax returns, the method is different from the traditional workers. But if you keep track of all expenses and tax deductions, it will help save a significant amount of money.
What are the popular tax deductions for the self-employed?
In recent years, tax cuts and job acts have made so many changes that are effective from 2018. So, here is the breakdown of all tax deductions that you can take while running a tech-related business.
The first thing you can write in the list of tax deductions is the startup cost of the business. For instance, if you started a company this tax year, you can write $5,000 as a cost you need for creating a new business. But this cost is a total of so many things like an initial advertisement, product and market research, etc. If you are writing that a startup costs over $5000, then it has to be capitalized. You have the option of using a paystub generator to sort out the information in different categories. Apart from this, don’t forget to note down the startup cost burn rate because it tells how long your business will take before earning profit.
Education is the main thing if you are starting a tech-related business. So, it’s vital to set aside some amount for education-related expenses. The tech world constantly changes, so you need to update your knowledge with time. So, here are the following ways that you can take for upskilling.
Invest on books
Thus, these are valuable tax deductions that you shouldn’t forget. Apart from this, it’s vital to understand what you can use as 1099 tax write-offs. In this way, you can easily track all education-related expenses.
In today’s world, marketing has become an intense affair. Now you can use Google, Facebook ads, LinkedIn promotions, and ad placement services. Apart from this, you can hire other digital and promotional services to do the job. But whether you are using a digital service or any software, you need money to support the campaign. So, while filing 1099 tax deductions, don’t forget to write marketing expenses.
Supply and material expenses:
Starting a tech business, you surely need material to set up new things. For instance, you need items like a computer, camera, printers, editing software, and other machinery to support your daily activities. Apart from this, the other things like books, magazines, and books related to the business should be deductibles. So, supplies and material costs should be on top of the list of tax deductions.
Expenses of home office:
Most of the self-employed people work from home. So, while filling out the 1099-form, write off the home office expenses. Whether you need to rent an office or use your home as an office, it takes money. However, you can include costs estimated in the list, and later IRS can investigate your claim. Here are the following things that you can consist of in-home expenses:
Rent or mortgage
Utilities like gas, electricity, etc.
Home maintenance cost
The home office is calculated based on square footage, and the claim can also apply to
mortgage interest. If you use your own as a home office, then take IRS form-8829.
Internet, phone, and gadget bills:
The internet, phones, technology, laptops, and internet connections contribute a considerable amount to the expenses of tech businesses. So, it’s vital to write these as a tax deduction. If you are using the home phone for office purposes, then note down the total hours of the phone for official use. Apart from this, the laptop and machinery depreciate over time. So, don’t forget to note down the depreciation cost as well. In addition to this, write down the on-time itemization of the entire cost for the year of purchase. But it doesn’t matter if you purchased a laptop, but 100% depreciation can raise a red flag for the IRS. So, be cautious about this aspect.
If you are running a tech-related business, it will help to buy an insurance plan. Apart from this, if you are paying an insurance premium or any other cost related to this, then write down the amount in tax deductions. There are the following types of business insurances that you can get:
- General liability insurance
- Cyber liability
- Commercial property insurance
- And the loss of income plan
It’s good to write the cost of the thing as business expenses that you are using to protect your business.
It is another reality of any business because you need legal assistance at every step. So, it will help if you don’t ignore these expenses from the list. The legal cost could include the following:
- Consultation service
- Attorney fee
- Accountant fee
So, these types of legal fees could be a burden on your pocket. So, if you are an independent contractor, write a legal fee as a tax deduction.
If you got any business loan, you surely need to pay interest on the original amount. So, if there is any loan on the list, don’t forget to write down interest expenses as tax deductions.
Note: Before making any claim in the tax deductions, don’t forget to consult your accountant for exact information. In this way, you can get an expert’s opinion to catch the missing tax deductions.