If you are a contractor, freelancer, business owner, or any other individual who has income that doesn't come from a single employer, doing your taxes can be challenging. One thing that trips a lot of people up is whether they can deduct certain items from their income. Here are some rules of thumb to consider.
Was it Solely Work-Related?
If you can show that something was purchased only because of work, it may belong on your tax return. The problem is that many items fall into a grey area. For instance, should you write off your phone if you use it 90% of the time for work? Can you take educational courses off of your taxable income? In these cases, it has to be clearly linked to your work. For example, the IRS will expect that you use a phone for personal use; if you have a second phone line only for work, that will be easier to write off. If your educational course was for a work credential, it might qualify for a deduction.
Was it Charged to Your Personal or Business Account?
It also helps to clearly delineate business and personal expenses by having two separate accounts. It makes the tax return simpler, and it also looks legitimate from a tax audit perspective. So, did you pull out your business or personal credit card for that expense? That may help you determine which category it should honestly fall into.
Was it a Reasonable Expense for Your Profession?
This doesn't mean that you can claim anything as an expense just because it related to your business. For example, if you took a client out to dinner and were extravagant, it may not be reasonable to claim the amount on your taxes. If your travels were tangentially related to your profession, it might not look good to a tax auditor. Look at each expense from the lens of an auditor and think about whether it makes sense in your line of work (and the dollar amount was reasonable).
These rules of thumb can help you figure out what you should really be claiming on your taxes. But if these guidelines still leave you scratching your head or wishing it could be simpler, a tax advisory team could be a good idea. They will be able to give you clear-cut and knowledgeable answers on which deductions apply to you. Hand over your receipts and 1099 forms, and they can handle the whole tax return for you.Share