As an independent contractor, what can I use as a deduction come taxes next year?

Question

Could I deduct my car payment? Can I deduct any services to my car, such as oil changes or new tires? I know I can definitely deduct the gas/mileage I use while on the job. Do I need to keep track of how many miles I drive each day for my job? Also, should I keep my receipts for gas? Can I deduct the food I buy while on the job? Please, if any of you are aware of even the smallest things that I should be keeping receipts for, please let me know. I am 21 years old, unmarried, and without children. I am working as an independent contractor, just started a few days ago. I will make about $12500 for the next 6 months remaining in 2006. How much should I set aside to pay taxes next year? I will be doing a lot of driving for the job, so do the deductions that come along with driving for the job make a huge difference? I am worried that I will be stuck with a rather large payment next year and just want to be adequately prepared. Thanks in advance for your help.

Answer 1

Here's a start...

YES... keep track of every mile and wheter it was personal or business. Basically, you can deduct the percentage that is business for all of the maintenance things. Yes keep receipts.

I'm guessing you are single, which means there is a standard deduction of $5000 available. You probably will use the standard rather than the itemized deductions I described above. Do you go to school? Have kids? These create more deductions.

For example: You earn $12500
Subtract $5000 standard deduction
Subtract $3200 personal deduction (everyone gets one)
Approx. Taxable Income: $4300 (the amount you would pay taxes on)

So... 10% tax bracket... you would be liable for $430 for taxes.

Note: I am not a CPA, contact your tax professional! Good luck.

Answer 2

1

Answer 3

The rules for deducting your car can be complicated. First you must decide whether you will use the standard mileage rate or the actual expense method. I would suggest the mileage rate since it is less burdensome for recordkeeping. The rate is 48.5 cents a mile for 9/1/05-12/31/05 and 40.5 for 1/1/05-8/31/05. Keep a log of you business use of the car. If you are commuting to an office (and do not maintain a home office) then none of the car expenses are deductible. If you use actual method, you still must keep a mileage log and keep ALL receipts regarding your car (gas,repairs,insurance etc). You will deduct the % of business use to total use. If your auto qualifies as a business asset (not "commuting") then the interest portion of your car payment is deductible, not the principal.
The food you buy is not deductible unless you are on out-of-town travel and then only at 50%. Other expenses would be supplies (office and computer), cell phone (business use only), postage, licenses (business lic is req'd in most areas), professional fees, bank fees (set up a separate checking account used only for business - - but don't tell the bank its for business since usually higher fees and IRS doesn't care how set up), hotel/airfare/tips.
As for receipts, I tell my clients that if you are in doubt of whether to keep one, then keep it...better safe than sorry.

Answer 4

Always save your receipts for deductions & proof of Business activities, review IRS schedule C-EZ & C. The catergories will give you some idea where your expenses fall into. Kepp track of vehicle mileage & expenses, use a good wriiten log & dates of service.
I'm conservative, I would save 20% (expenses permitting) for taxes. (10% minimum). If you can get your employer to withold for federal, state & local taxes if needed, do it. I have friends I give this info to, & when they don't do it, they get the big tax bill!! (especially on higher incomes) Just protect yourself & in the long run you shouldn't have problems. Get last years tax software (any of the big names) & compute your own last year taxes & then do some what if's. Business income (schedule C or C-Ez) Mileage, expenses etc. good Luck.

Answer 5

Check IRS publications. Generally, any ordinary and reasonable expense required to produce income in a business intended for profit. Includes supplies, transportation, small equipment, etc.

Answer 6

this income is asserted on Sch C and if the 'internet' quantity is $four hundred or more suitable, also on Sch SE the personal belongings you're utilising for this area artwork should be unique to the business enterprise, ie. your internet won't be able to be your own connection it should be unique for the business enterprise, as a telephone if the computing device is for the business enterprise for sure, yet you probably use it for extraordinarily own to boot and until eventually you are able to confirm the quantity of business enterprise utilization, no your favourite deduction has no longer something to do with expenses you declare on Sch C

Answer 7

Start by looking at Publication 334 which you can get off of the IRS website.