Tax season for contractors can be a daunting time. Having to consider payroll tax, your income tax and whether any tax rules have changed over the last 12 months is exhausting.
To ease the burden, we have put together a general guide on to how to get the most out of your return, and also suggest some habits you can form to make tax time easier into the future.
Receipts are king
Keep ALL your receipts, if this is something you have failed to do for FY16, then the boat has probably sailed, but something to keep in mind for the next financial year.
As a contractor, you need to keep a good record of every item you purchase, as it may be a deduction you’re legally entitled to. There are various smartphone apps that can help you do this quite easily:
Certify: Cloud based app which categorises your receipts
Shoeboxed: Let’s you take a photo of your receipt and categorise them into reimbursable or deductible expenses.
OneReceipt: Photograph and tag receipts which can link to your Google, Yahoo, or Outlook mailbox so that receipts can be mailed to you.
Receipts: Photograph and categorise your receipts and then build comprehensive expense reports based on the receipts you have assembled
Don’t overlook deductions
There are loads of deductions people miss that could save them a lot of money.
Some of the most commonly overlooked expenses include:
Medical expenses: Your health insurance costs are 100% deductible, as well as any out of pocket medical expenses including dental, laser eye surgery and even some IVF costs.
Home insurance: If you have a home office, you can deduct a portion of your rent, mortgage, utilities and home insurance based on the percentage of your home the office occupies.
Business Gifts: You can claim $25 per person per year. So if you bought 4 bottles of $50 champagne for 4 of your clients, you can claim 50% of the cost for each bottle.
Education: If the education is necessary or useful in your trade, then the costs of your education is tax deductible. These include workshops or seminars, gallery or museum admission fees etc.
Business travel: Most of the expenses incurred while you are away, are considered business expenses. This includes accommodation, food, airfares, and train/bus/taxi fares. There are specific rules around what is considered business travel – consult your tax professional to see whether you qualify.
Don’t go overboard
Don’t get too creative with your deductions. As a general rule, if you could easily justify the business expense to an auditor, claim it. If you have any doubt about the deduction – don’t claim it.