April showers have always promised May flowers, but another grim reality of the month is the ever popular topic of taxes. My question, as we talk about this month about appearances is a simple one: what do your finances look like? Are you taking advantage of the tax breaks your work offers? No one at the IRS is interested in giving you money back if you don’t ask for it. That means it’s incumbent upon you to learn what you can. First realize you need to talk with a professional. Find a good book at the library. Do a little research.
You are an independent contractor. According to Wikipedia, that means you provide services to another entity under terms of a contract or within a verbal agreement. You operate with a lot more latitude than employed counterparts. You often enjoy flexibility of arranging your own hours. Your only uniform is your own good sense in putting your best foot forward. Most importantly, you receive a 1099 instead of a regular W2 form at the end of the year. That’s a huge benefit!
The bottom line is simple: your mileage, clothing dedicated to your work, work-related expenses all add up. Portions of your cell phone and internet are also deductible. If you have a dedicated home office, that is deductible. The potential is enormous in calculating your tax liability. As independent contractor, you enhance your image when you understand the nuances of your position and can speak knowledgably about your work. That includes learning about just a few of the intricacies of the tax code.
Why are we talking about this now? First of all, this is when you should be setting up a small notebook for cataloging expenses and collecting pertinent receipts. Having a system means you just might follow through in keeping track of your income, but not having a system means you definitely won’t. It doesn’t have to be a cumbersome process. As a matter of fact, keeping it simple ensures its success. Secondly, keeping track of your expenses is part of your image. Wouldn’t you rather be seen and known as someone who has it all together rather than a person floating through life, always at a disadvantage? And it’s not just about appearances, is it? It’s about your own bottom line. The amount of money in your pocket offers a direct correlation to how much you enjoy/appreciate being an independent contractor.
You’ll find a basic perspective on your tax classification in this Kiplinger article. Quick Books offers a list of potential deductions for independent contractors. The article is thorough and an excellent starting place if you are new to the idea of deducting your business expenses. Smart is the new sexy, so bone up on this topic now. Learn how to keep more of your hard-earned cash.