Self-employed people have to follow different rules when declaring their taxes so as not to fall into errors which can be very expensive.
Self-employed people have expenses that they deem necessary for their work and that they can consider deducting on their tax return.
However, they should be careful about the type of expenses they want to include as a deductible.
An IRS expert explains in detail.
“When they’re self-employed, a lot of people want to deduct everything, everything they use,” said Vilma Rios of the National Association of Tax Preparers. “But there are certain limits and there are certain things they have to follow.”
What are the deductible expenses?
One of the deductible expenses is vehicle mileage. However, you need to keep track of it.
“(If) they are going to drive, for example, to get from one business to another, to a client, they have to keep (record) the kilometers, the date and the details,” Rios said.
Other deductions allowed are health and business insurance, as well as office rent, publications and subscriptions.
Contributions to retirement plans may also be included in the tax return.
What are non-deductible expenses?
One of the non-deductible expenses is the use of the telephone, unless it is in the name of the business.
“It has to be business-related and exclusively,” Rios said.
What should I do if I am being paid electronically?
Independent contractors who receive electronic payments through platforms such as Paypal and Venmo must report these funds as income.
“The IRS realizes there are a lot of payments that go unreported,” Ríos said.
These platforms must report to the IRS any payments entrepreneurs receive above $600 per year.
Here are some tips to keep in mind this tax season.
Starting next year, these platforms will be required to send the independent contractor a 1099K form if they receive money through electronic payments.
However, you must specify whether you receive payments from family or friends to avoid counting them as business income.
In this case, if the person uses electronic payments, it is advisable to create two accounts, one for personal use and the other for payments of goods and services. This could save you trouble with the IRS.
For more information on the declaration of income for independent contractors, Click here.