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Reducing Your Tax Bill: 16 Tax Deductions For Independent Contractors

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There are several benefits to being an independent contractor, one of which is the several tax deductions you can make in your tax bill.

May 16, 2024
Author: NCH

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Independent contractors are in charge of managing their business affairs, which includes tracking their income, expenses, and taxes. 

Unlike regular employees, who have taxes automatically withheld from their paychecks, independent contractors must set aside money for their tax obligations. 

Fortunately, there are several ways you can effectively reduce your tax bill. Below, we’ve enumerated the 16 different tax deductions for independent contractors you can take advantage of. 

Find out how to minimize your taxable income and maximize your savings in this guide. 

16 Tax Deductions Independent Contractors

Here are the different tax breaks independent contractors can claim:

Home Office Deductions

Since most independent contractors work within their homes, you can claim a portion of your mortgage and utilities as office expenses and deduct it from your taxable income. 

There are two ways to calculate your office deductions. One is the standard method, which involves determining the percentage of your home office’s square footage out of your home’s total area. 

The second method is more simplified. If your home office is under 300 square feet, you can claim a standard $5 write-off per square foot. The maximum deduction in this method is $1500 per year. 

Office Supplies

In addition to your office space, you can deduct the cost of your office supplies, such as pens and paper, from your taxable income. However, you can only write off the supplies you used during the tax year. 

Advertising Costs

Independent contractors can also deduct the cost of online and offline advertising activities from their taxes. Examples of this include:

  • Running ads on Facebook and Google.
  • Participating in trade show promotions.
  • Printing business cards and other similar promotional materials. 

Aside from this, any commission you’ve paid for sales and marketing purposes can be tax deductible, including the seller fees typically charged by e-commerce platforms such as Amazon, Etsy, and eBay. 

Contractual Work & Professional Services

It’s common for self-employed workers to hire other independent contractors for small projects. For example, if you hire a web developer to help you build a website, you can deduct their bill from your taxable income. 

The same rule applies to professional services rendered by tax advisors, lawyers, and accountants are tax-deductible. 

Internet & Phone Bills

Your internet and phone bill can also be tax-deductible. However, the IRS says independent contractors cannot deduct basic local telephone service costs for your first telephone line at home, even if you have a home office. 

According to their guidelines, you can only deduct a portion of the bill directly used for your business activities, such as additional fees for long-distance business calls and the cost of a second phone line dedicated to your business. 

Travel Expenses

You can also deduct any travel expenses incurred during a business trip, such as accommodation, airfare, and other transportation costs. However, for a trip to be tax deductible, it must last longer than an ordinary workday and take place away from your general place of business. 

Business Meals 

Meals can also be tax-deductible, so long as they’re directly related to business activities, such as meeting with potential clients or traveling for a business conference. 

According to the IRS guidelines, self-employed workers can deduct 50% of the business meals they purchased if they were able to keep the receipts. 

Car Mileage

If you sometimes use your car for business travels, you can deduct the trip’s mileage and other associated expenses from your taxable income. 

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Calculate your write-offs by computing your actual expenses or using the IRS standard mileage rate. As of this writing, the standard mileage rate for 2024 is 67¢. 

Most independent contractors use the mileage rate since it’s an easier approach. But if you base your deduction on your actual expenses, you’ll have to calculate the total cost of operating the vehicle. 

For example, if your car costs are around $3000 and you use it for business 10% of the time, your total tax break will be $300. 

Business Insurance

Insurance premiums for general liability, theft, and worker’s compensation insurance are tax-deductible.

Health Insurance

Independent contractors can deduct their insurance premiums from their taxable income if they pay for it on their own, and they’re not eligible to participate in a health insurance plan through their spouse’s employer.

Retirement Plans

Contributions to a Simplified Employee Pension (SEP) individual account can be tax deductible. The same rule applies for employer incentive match plans like SIMPLE IRAS and solo 401(k)s. 

Business Licenses & Incorporation Fees

Any business licenses or certifications needed for your operations can be written off from your taxes. This also includes any incorporation fees and startup costs you paid for establishing your small business. 

Loan Interests

If you’ve taken out a business loan or have different lines of credit, any interest you incur is tax-deductible. However, this does not apply to any interest you paid before their due date. 

Educational Expenses

Educational expenses are another tax deduction independent contractors can claim. You can write off the costs of webinars and publication subscriptions related to your business from your taxes. 

Self-employment Taxes

Self-employment taxes consist of two different tax types: Medicare and Social Security taxes. Typically, this tax burden is divided between the employer and the employee. However, since independent contractors work alone, they must pay for the entire 15.3% tax rate themselves.

Fortunately, you can deduct half of the self-employment taxes from your net income. The IRS treats the employer half of the self-employment tax as a business expense, allowing you to write it off your total tax bill. 

Membership Dues

Membership dues for the following groups are also classified as tax-deductible:

  • Boards of trade
  • Business leagues
  • Chambers of commerce
  • Civic/public service organizations
  • Professional organizations such as medical associations
  • Real estate boards
  • Trade associations

Reduce Your Tax Bill Today

Tax deductions are one of the many benefits of being an independent contractor. But to maximize them, you must be diligent in your record-keeping. 

Keep accurate records of all your expenses throughout the year. This way, you can substantiate your write-offs should the IRS audit your tax returns. Lastly, consult a tax advisor specializing in independent contractor taxes, like NCH. 

NCH’s tax advisors can help you optimize your tax savings by ensuring you take advantage of all the tax breaks available to self-employed workers. 

Schedule a consultation with one of our tax advisors and call us at 1-800-508-1729. 

Disclaimer: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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