Tax codes in different regions or countries vary significantly, but most offer some breaks to the independent contractor. The contractor is not considered a legal employee of someone else, and typically works for himself, possibly conducting a variety of different jobs for which he contracts throughout the year. Since the contractor is covering all the expenses of running a business on top of working, his taxable salary might be reduced by numerous deductions as defined by a tax agency. Some of the most common independent contractor deductions include those for home or formal office expenses, transportation, business travel, money spent directly on or for a business, payment to other employees, and certain extra expenses like providing health insurance for the self and family.
Many independent contractors work from home or they may rent offices. In either case, independent contractor deductions in this area may remove office expenses from taxable income. If an office is at home, a common direction is to reduce salary by the percentage of the home used for work times the total rent or home payments. Part of the utility cost in a home office can also be reduced. This can represent a huge deduction for some people, and it doesn’t stop with the deduction of rent or house payments; home depreciation, business furniture, office equipment like computers, paper, and telephones may also be fully or party deductible.
Another set of equally common independent contractor deductions concern transportation and travel expenses. Transportation is usually assessed as a cents per mile deduction when a person’s vehicle is being used for business expenses. Since many independent contractors do work from home, this could mean any costs associated with traveling from home to job sites. Travel expenses can also be deducted in many cases, provided that the main purpose of a trip is business-related.
Independent contractors may also invest in their businesses in a variety of ways. They might pay for advertisement or they could spend money to upgrade facilities, such as a home day care. Independent contractor deductions for business investment may be available. Though most independent contractors are not employees, hiring occasional employees or hiring spouses or children is sometimes viewed as tax deductible. Paying wages is a viable business expense.
Similarly, paying for things for employees, such as health insurance, can be viewed by tax agencies as fully deductible. Investment in employees is usually part of independent contractor deductions, but protection of the self may be deductible, too. Money spent to self-insure may reduce taxable income.
Within each regional tax code, there may be other independent contractor deductions that apply. People who fall into this special category are advised to understand the tax code thoroughly so they can appropriately report their earnings. Careful attention to deductions may not only lead to more accurate reporting, but may also save the independent contractor money by reducing tax burden.