As a contract worker, understanding deductions is crucial to keeping your finances in order. Unlike traditional employees who have taxes automatically deducted from their paycheck, as a contract worker, it’s up to you to keep track of and pay your own taxes. Failing to properly deduct your expenses can result in a hefty tax bill come tax season, which no one wants.
So, let’s dive into the various deductions that contract workers can apply to their taxes to ensure they’re keeping accurate records and saving money.
Mileage Deductions
If you use your vehicle for work purposes, you can deduct the mileage you put on it. For example, if you’re a freelance writer visiting a client in another state or a contractor commuting to a job site, you can keep track of your mileage and deduct it from your taxes. The standard mileage rate for 2021 is 56 cents per mile.
Home Office Deductions
If you work from home, you may be eligible to deduct expenses related to your home office. These include things like rent, utilities, insurance, and internet costs. To qualify, you must have a dedicated space in your home used exclusively for work.
Equipment and Supplies Deductions
If you use equipment or supplies for work purposes, you can deduct the cost from your taxes. This includes things like computers, printers, stationery, and software. Keep in mind that you can only deduct the portion of the cost that is used for work, as opposed to personal use.
Health Insurance Deductions
If you’re self-employed and pay for your own health insurance, you can deduct the cost from your taxes. This deduction can be taken whether you itemize your deductions or take the standard deduction.
Retirement Deductions
As a contract worker, you’re responsible for saving for your retirement. But the good news is that you can deduct contributions you make to retirement accounts like an IRA or solo 401(k) from your taxes.
In conclusion, as a contract worker, knowing and keeping accurate records of your deductions is essential in ensuring you’re not overpaying on your taxes. Consult with a tax professional to ensure you’re taking full advantage of these deductions and saving as much money as possible.