It’s hard to believe it’s already the end of another year, and time to start getting ready to file those dreaded tax returns. If you are an independent contractor or sole proprietor you need to make sure you’re taking all the deductions and credits available to you.
First, we need to understand the difference between a deduction and a credit. Basically, a tax credit reduces the income tax you pay and a deduction reduces the amount of your income that is subject to income tax. For most sole proprietors/independent contractors you will have more deductions than credits.
A few examples of deductions are certain charitable contributions, some marketing expenses, supplies, or insurance premiums. A couple of examples of tax credits are the Work Opportunity Tax Credit and Retirement Savings Credit. A couple of non business related tax credits an individual may qualify for include the Earned Income Credit, the Child/Dependent Care Credit or the Child Tax Credit.
To ensure you take all the deductions and credits available to you consult a tax professional or visit the IRS website at www.irs.gov