If you work as an independent contractor in the maintenance area or perform similar work (plumbing, gardening, electrical work, carpentry, etc.), you will most likely be considered as a “self-employed sole proprietor” in the eyes of the IRS.
Knowing this is important as you will have to pay taxes on the profits you generate by doing these jobs as a freelancer, and you will be able to claim certain tax deductions that vary depending on the costs you have incurred in order to perform these jobs.
When you are self-employed, you must file Form 1040 with the IRS; however, earnings are not reported on line 7 (Salaries, salaries, or tips), but on line 12 of the form, as business income. It is important to know that you should not report the total income you earned for your work, you must first use “Schedule C” to calculate the net profit after calculating all the tax deductions you can claim.
Here are 3 tax tips to help you get the most out of your income and have an easy, headache-free tax season.
1. Deductions as a professional in Schedule C
If you incur in any expenses that help you do your job as a plumber, carpenter, electrician, gardener, etc., you may be able to deduct this expense on your tax return. Some expenses that can be deducted are:
- Vehicle expenses: If you use a vehicle for work only, you can deduct all expenses for maintenance, gas, etc., if you cannot calculate all the costs of operating the vehicle, you can use the IRS standard mileage deduction, which is set at 58 cents per mile driven for work purposes in 2019.
- Equipment, Tools and Supplies: You can deduct the costs of purchasing the tools you need in order to complete your work.
- Advertising/ad expenses
- Home office: If you use a section of your home exclusively to run your business, you can deduct this part of the home based on the square footage of the office area. Similar to car use, you can use a simplified option the IRS offers to deduct these
- Internet and Telephone Services: If you use these services exclusively for your business, you may deduct 100% of the cost of these services, if these services are shared with the rest of your home or personal life, you may deduct only a proportional portion of them.
- Training costs: If you had to attend training or learning courses, you can deduct these costs; it’s important to check with your trusted accountant if you’re not sure of any of the deductions you can claim.
2.Self-Employment taxes and estimated payments
As self-employed, you will have to pay taxes as “Self-Employed.” These taxes are currently set at a rate of 15.3%. This includes the Medicare and (2.9%) Social Security. (12.4%) contributions.
You may also need to make estimated tax payments to the IRS during the year, which vary depending on your tax payment projections for the upcoming tax season.
3. Keeping and storing records and documentation is extremely important
Saving receipts, contracts, and any documentation you generate will be very important to be able to file your tax return. Recording the earnings and expenses you incur will also be equally important. Tips for keeping a much cleaner record of your income and expenses include:
- Save all receipts and invoices in a folder or file apart from your personal expenses
- Open and maintain a separate bank account to receive payments for your work
- Apply for credit cards used only for your business
- Keep records of miles driven by work, use devices to count miles