Now that 2021 has come to a close, you’ve probably taken a look at its annual financials. Come April, you’ll still have taxes to consider paying out as an independent contractor since you won’t have a typical W-2.
Here are five tax write-offs to consider when gathering your documentation throughout the year. (Make sure to consult with an accountant or a tax professional to make sure the deductions are eligible.)
Charitable Giving
Charitable giving is a great way to contribute to the greater good while getting a tax write-off. As a general rule of thumb, you’re able to deduct up to 60% of your donations. However, certain organizations and types of donations only qualify for a 20% to 50% deduction.
There are several ways to be able to do this, such as making a general donation. A more effective way is to set up what’s called a charitable fund. It’s a way to maximize and organize your donations.
Internet and Phone Bills
While you can’t deduct 100% of your internet and phone bills, you can deduct the portion that is strictly used for business. For instance, if you run your business website through a platform, you’re able to deduct the cost of hosting and any maintenance you may have needed throughout the year.
Your phone bill, on the other hand, shouldn’t be fully deducted unless you solely have the phone for business purposes.
Long-distance phone calls for business can be deducted, whereas regular monthly data plans cannot if you use them for personal things like social media or texting with your friends.
Home Office
If you want to get a big tax refund, your home office is always a good place to start. However, it’s the most detailed and sometimes confusing.
Your home office is an area of your home that is exclusively used for work. You can figure your deduction by multiplying the total square footage of your office by $5. At most, you can deduct up to 300 square feet, or $1,500.
Owning a house may also qualify you to deduct certain percentages of your mortgage interest, utilities, and homeowners insurance. If you live in an apartment, you need to be careful with your deductions. Again, the area which you use as your office needs to be legitimate.
Meals
You may be thinking every time you go out to eat is an opportunity to write it off, as long as you use your business account to pay for it. However, these meals are only eligible for 50% dedication. It’s considered a tax-deductible expense if you’re traveling for work or entertaining a client.
Keep in mind alcohol and other extravagant purchases at lunch or dinner cannot be used as a write-off. As of December 31, 2020, the Consolidated Appropriations Act (CAA), 2021, H.R. 133, allows for a year-long temporary allowance for a full 100% dedication of meals rather than the 50%.
That is, as long as the meal is a business expense provided by a restaurant. This provision expires at the end of 2022.
Travel Expenses
If you’ve ever had to go out of town for a conference or are working to obtain new clients in a different city than you normally conduct your work, you may be eligible to deduct travel expenses.
Taking a fun trip to Hawaii doesn’t mean you’re entitled to write everything off. However, if the trip was to meet with a client, the expenses such as hotels, meals, flights, and vehicle transportation can all meet the requirements.
You’ll want to be aware that you can’t deduct any other frivolous expenses you might incur while out of town. Say you treated yourself to a massage. This wouldn’t be included in eligible deductions.
Conclusion
No matter what you’re intending to write off, it’s important to keep documentation of every single transaction. Receipts, flight information, and any other records that would be pertinent should be held onto for at least seven years.
The IRS may look into your case if you’ve claimed anything they’ve deemed to be a bad tax deduction. They also have full authority to go back as far as ten years to collect unpaid taxes.
When in doubt, make sure to consult with a tax professional. They’ll be the ones who can ensure whether or not your self-employed tax deductions are legitimate, or if you may qualify for other deductions.
