“In this world, nothing is certain except death and taxes,” Benjamin Franklin famously said. Whether freelancing or running a business, you’ll know about being classified as an independent contractor. That’s why you need an effective tax plan for your unique situation.
But how can you keep more money and pay less in personal taxes in NYC? You can use a few tips and tricks to reduce your bill. These tips will help you save more money while staying on the right side of the law.
Let’s get started.
What is an independent contractor?
An independent contractor is a self-employed individual who provides services for other people or businesses without being on their payroll. In other words, they’re a freelancer.
The net of who falls under the independent contractor title is pretty broad from the IRS’ perspective. Traditional freelancers like writers and musicians will fit into this category, as well as self-employed lawyers, doctors, and dentists.
Independent contractors must pay their social security and Medicare taxes and submit a tax return each year to the IRS. Freelancers aren’t eligible for employee benefits, even if they’re working with a business long-term.
Deductions to take advantage of
Tax deductions are a great way to ensure more money stays in your pocket.
You can use many different deductions, but we’ve outlined the most common ones here to give you a starting point.
Home office deductions
If you have a home office to work from, deducting a portion of your utilities and insurance to lower your tax bill is possible. To qualify for this deduction, your home office must be your primary place of business. You must also use it regularly and exclusively for work.
Keeping good records of your home expenses will help you to calculate the correct portion you can deduct.
If you ever need to travel for work, such as visiting clients or attending a conference, then you can deduct many of these expenses from your tax bill. Flights, trains, hotels and meals all count as tax deductions, but be sure to check on the IRS website first to check what you can claim.
If you travel regularly, be sure to keep track of your expenses. When paying your tax bill, the last thing you want is missing receipts.
Tax advise and fees
Did you know you can deduct the money you spend on hiring an accountant to look after your taxes from your taxable income?
Let’s say you hire a CPA in NYC. Not only do you get a qualified professional to handle your tax liability and navigate the complex tax world on your behalf, but you can also deduct these fees from your tax return.
Other top tips
Once you’ve gotten your tax deductions in order, you can use the strategies below to help reduce your tax liability and give you more hard-earned cash back in your pocket.
Contribute to retirement accounts
Nobody likes to think about it, but retirement is around the corner sooner than you think. One of the best ways you can reduce your tax bill today and save for tomorrow is to up your retirement account contributions.
Traditional Roth IRA contributions can be tax-deductible, but specific rules exist around spouses and workplace retirement funds. Read more about the contribution limits here.
Stick to deadlines
You must pay the IRS in quarterly installments if you owe more than $1,000 in yearly taxes. Missing the deadlines can result in extra fees and penalties, which rack up costs.
The deadlines usually fall in the middle of April, June, September, and January. Keep an eye on the calendar, or let a professional accountant handle the hard work so you can focus on running your business.
Look at incorporating
If you’re doing well with your business, incorporating it into an LLC could save you money in tax. Corporation tax is lower than income tax, and more deductions may be available to you.
If you are considering incorporating your business, it’s essential to consult with a tax professional to determine if it’s the right move for you. Talk to our business tax accountant in NYC, and we would be happy to help.
Time your income and expenses
Choosing when you bill clients and pay taxes can help you game the tax system and give you some flexibility. For example, you could prepay some expenses before the end of the year to take advantage of deductions.
Another option is to delay billing a client until the following tax year. This reduces your taxable income for the current year and allows you to pay taxes on the payment in a future year when your tax rate may be lower. If you want us to figure this out for you, check out Ahad&Co’s NYC tax planning.
Utilize tax credits
Tax credits are a dollar-for-dollar reduction in the taxes you owe, so make the most of them if you’re eligible. These are subject to income limits, and you may need to jump through some more hoops to qualify, so read up on what’s required before you apply.
Common tax credits include the Earned Income Tax Credit (EITC) for low-income workers and the Child and Dependent Care Credit if you have kids in childcare while working. Depending on your circumstances, you can also get tax credits for retirement savings and healthcare.
Hire a professional
Hiring an expert to handle your taxes is wise if you’re worried about staying on the right side of tax laws. To get you started, get in touch with our accountant in NYC.
An accountant can find deductions and credits you may have yet to learn you qualified for, navigate the tricky tax system and ensure everything is above board.
You can also save time and peace of mind by letting a professional handle the details, leaving you free for other business areas. You can also deduct the expense from next year’s tax bill – so it’s a win-win situation.
Reducing your tax liability as an independent contractor requires thoughtful planning, strategic decision-making and professional guidance. With these tips, you’ll be making savings in no time.
Don’t know where to start with your taxes? Click here to learn about Ahad & Co’s suite of tax advisory services. From individual tax planning to foreign tax services, we’ve got you covered.