Independent Contractor? How to Track Those Expenses!
By Lauren Gines
Do you work for a company, but you’re contracted out? Do you receive at 1099? There are a couple of different types of tax documents you could receive from your employer. The first is a W2, which you get if you’re an “official employee.” If you’re an independent contractor or something similar, you’ll most likely receive a 1099.
What’s the difference?
If you receive a W2, your employer will do the heavy lifting, tax wise. They’ll take out the social security and Medicare taxes for you. If you’re a 1099, or contracted employee, they won’t take anything out for you. Which on the one hand could be great. You’re getting your full paycheck! But if you don’t actually set aside those taxes to pay later, there may be a very unwelcome surprise waiting for you come tax time.
There are some benefits, right?
Yes, of course! As an independent contractor, you can keep track of any expenses associated with the job. You can then deduct them from your total income on your tax forms.
How does it work?
You can deduct necessary expenses for your job.
For example, if you have any software subscriptions like Adobe, Microsoft Office, Canva, etc., that you use for your job, those costs are deductible.
If you use a home office for your job, you can factor in the square footage of the office against the square footage of your home and expense that. You can also deduct any gear you use on the job, like a camera and lenses if you’re a photographer or any car maintenance costs if you drive a rideshare like Uber or Lyft.
Keep in mind, the things you can expense depend on the nature of your work. The rule is it needs to be an ordinary and necessary expense for your business.
For example, if you’re an accountant, it would seem out of place and hard to justify deducting expensive plumbing equipment for your business. It must make sense for the job you’re doing.
Also, it might be tempting to try and expense your commute. It would be great but it’s not allowed. Once you’re at work though, and you need to run errands for your boss or attend an out-of-office meeting, you CAN keep track of those miles, and you can expense them on your tax forms.
If you usually work from a home office and you have to go in every now and then to a main office, you CAN expense that commute because your office is your home. A good rule of thumb is, just keep track of everything. Track all the miles you feel may count. Then at your tax appointment, we can help you decide what is and is not acceptable mile usage.
And that goes for your expenses as well. Just keep track of them. Keep all your receipts. And your tax professional can help you figure all that out at tax time.