Many individuals across Georgia make their livings as independent contractors with the large businesses that call the Atlanta metro home. For a lot of these contractors, the thought of navigating the tax labyrinth can be stressful enough to warrant outsourcing their filing. However, in many cases, careful attention to detail and thorough preparation can simplify the tax process for contractors and reduce the stresses of tax season.
In light of that, contractors should consider the following common mistakes as they go about filing their taxes.
Failing to write off all business expenses
Everyone’s goal in filing taxes is to get back as much as they can and avoid an audit. For contractors, writing off business expenses is a crucial part of that goal. Business expenses typically fall into three categories:
1) Things you use to operate your business – Contractors can consider anything integral to making their business run as a business expense. For example, a graphic designer could write off their laptop, design software and creative tablet.
2) Things you use in the course of business – While not crucial to everyday operations, a contractor may incur expenses they otherwise would not have without a business need. For instance, if a graphic designer needs to drive to regular client meetings, they could consider their mileage a business expense.
3) Expenses related to your place of business – If a contractor rents office space, the rent and the utilities could be considered business expenses.
Writing off non-business related expenses
While some contractors may err on the side of writing off too few business expenses out of caution, others may overcompensate in the other direction by writing off personal expenses. If that graphic designer writes off their laptop, but they also use the laptop for personal use, they should not write off the entirety of the computer. Contractors should think carefully about how equipment is used before writing it off.
Keeping incomplete records
A contractor can write off 100% of their business expenses, but the point will be moot without confirmation that those expenses actually existed. Keeping receipts and invoices for every expense and maintaining them in an organized and accessible manner can make filing a 1099 much more straightforward. If a contractor intends to write off mileage as a business expense, writing down dates, distances and purposes is a must.
Filing incorrect tax forms
If an individual has just recently switched from full-time work with a company to being an independent contractor, they are probably familiar with the 1040 income tax form, but the 1099 might be new to them. Contractors should receive a 1099 from any client that paid them $600 or more during the tax year in question.
Submitting a 1099 is an easy way to report self-employment income. If a contractor does not receive a 1099, they should contact their client as soon as possible to obtain it. When a contractor receives their 1099, they should review it carefully to make sure that the compensation listed on the form matches the compensation they received. Mismatching information on 1099s can trigger an audit.
Filing taxes for more conventional incomes can be complex as is, and contractors have their work cut out for them. Any contractor with concerns about their taxes should work alongside an experienced tax professional to minimize mistakes and avoid the potential for an audit.