As an independent contractor, you are responsible for managing your own finances and determining what expenses can be claimed on your taxes. Claiming expenses correctly can save you money on your taxes. However, it can be confusing to figure out what expenses can be claimed.
The short answer to the question, “can independent contractors claim expenses?” is yes. Independent contractors can claim a wide range of business expenses on their tax returns that are necessary and ordinary for their specific trade or business.
What are business expenses?
A business expense is any cost that is necessary and ordinary for your specific trade or business. Necessary means the expense is helpful and appropriate for your trade or business. Ordinary means it is common and accepted in your industry.
For independent contractors, examples of common business expenses include:
1. Home office expenses: If you work from home, you can claim a percentage of home expenses like rent/mortgage, utilities, and internet bills.
2. Office supplies: Any materials that you use to conduct your business, such as printer paper, ink cartridges, staplers, etc., can be claimed.
3. Professional services: Any fees for accountants, lawyers, and consultants can be claimed.
4. Marketing and advertising: Any expenses related to promoting your business, including website development costs, advertising expenses, and marketing materials, can be claimed.
5. Travel expenses: Any expenses related to business travel, such as airfare, hotel, car rental, and meals, can be claimed.
6. Equipment and tools: Any equipment or tools needed to run your business, such as a computer or a camera, can be claimed.
What can`t be claimed as a business expense?
While there are many expenses that independent contractors can claim, there are also some expenses that cannot be claimed. These include:
1. Personal expenses: Any expenses that are not related to your business cannot be claimed.
2. Illegal expenses: Any expenses related to illegal activities cannot be claimed.
3. Commuting expenses: You cannot claim the costs of commuting to and from work.
4. Capital expenses: Equipment purchases that are expected to last more than one year must be depreciated over time and cannot be claimed in full in the year of purchase.
It is important to note that claiming business expenses that are not legitimate or personal expenses can be penalized. It is essential to keep proper records and receipts to support any expenses claimed on your tax returns.
Final Thoughts
Independent contractors can claim various expenses on their taxes, provided they are necessary and ordinary for their specific trade or business. To ensure that you`re claiming legitimate expenses, it is crucial to keep proper records and seek advice from a tax professional if necessary. Properly claiming expenses can help reduce your tax burden and maximize your earnings as an independent contractor.