Working as a subcontractor can give you the freedom to make your own schedule, and it can also provide you with tax advantages you do not get when you are an employee. As a subcontractor, for example, you can take a variety deductions on your taxes for business-related expenses.
These can include equipment, business travel, health care costs and a home office. Reviewing a basic subcontractor tax deductions list will help you avoid missing write-offs that will help you reduce your tax liability.
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Consider also: Independent Contractor Tax Deductions
Tools and Supplies
When you work as a subcontractor, you can deduct many of the expenses that you incur throughout the course of normal business operations. For example, if you buy tools or supplies, you can deduct the cost of these items from your taxable income.
When you buy supplies for your business, keep the receipt so that you can prove the expenses were actually incurred. You will not need the receipt when you file your taxes, but if you are audited, the receipts can help you prove the deduction.
Consider also: Guide to Home Office Deductions
Home Office Expenses
Depending on what type of work you do, you may need to have some kind of office to perform business functions in. If you have your office in your house, you can take a deduction for it. The home office deduction allows you to deduct many costs that are associated with your housing.
For instance, you can deduct part of your utility bills and your mortgage payment for this deduction. Your office space must be used exclusively for business, so it can't double as a workout room or nursery and a home office. However, you can split the space in a room for these purposes and claim only the portion used exclusively for business.
Work with a tax professional to claim a home office deduction correctly.
Consider also: Self-Employed Health Insurance Tax Deductions: What You Need to Know
Health Insurance and Medical Costs
Working as a self-employed individual can also provide you with the opportunity to deduct certain medical costs. If you pay for health insurance out of your own pocket, you can deduct the entire amount of the premiums from your taxable income. To get this deduction, you have to make a profit for the year with your business.
If your health insurance is a high deductible plan, you can also use a health savings account and then deduct any expenses paid with this account. With frequent changes to tax laws, it's a good idea to consult your tax preparer at the beginning of the year to make sure you don't expect a deduction that later isn't allowed.
Your Vehicle Use
If you use a vehicle for your business, you can deduct a portion for business purposes from your taxes. To do this, you can deduct an allowance for each mile you drive or you can keep track of the actual maintenance expenses related to your car and then deduct that amount. The mileage deduction for 2021 is 56 cents per mile. If you want to use the mileage method, keep a logbook of the miles you drive for business purposes.