Top Five Tax Deductibles for Contractors

Top Five Tax Deductibles for Contractors

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By Alex Simmonds

Around the world more and more people are making the change to freelance, contract or consulting work, swayed by the freedom and flexibility of self-employment and no longer able to count on the ‘job-for-life’ office culture that existed for most of the twentieth century. Instead, many contractors are finding more freedom and greater financial rewards working for themselves.

But it is amazing just how many smart, efficient and driven contractors, freelance workers and small business owners do not claim their full entitlement when it comes to tax deductibles and are therefore not earning as much as they could be!

As soon as you make the leap into self-employment one of the first things you should do is get yourself a good accountant. He or she will help you navigate the essential tax deductibles for your industry, but any self-employed worker will soon see that the contracting sector brings its own unique tax concerns. Below are the five main areas of tax deductibles you should consider.

1. Working from home.

If you are working from home or from a purpose built home / office premises then there are a number of areas you should be claiming for. Firstly, you should calculate how much of your home is used as a home office and is dedicated to your business. Then you can claim this percentage of your mortgage or rental payments as deductible. Next, keep records of any qualified business expense related to the home office / business premises. This could be the cost of building or maintenance as well as all the utilities used to maintain the office – everything from computers and printers to stationary and phones, as well as all of your utility bills such as electricity, phone and broadband. Document and retain all these bills. Finally, make sure that if you have claimed a tax reduction on your house and you intend to sell the house you discuss with your accountant how this affects the house sale.

2. Out And About

Any travel expenses, no matter how small, are tax deductible if they are to do with the running of your business. Most travel expenses can be divided into two types – those for business only and those for both business and pleasure. How much you can deduct depends on the type of business. Similarly there are often distinctions made between commuting and travel-by-car to the site of a job or to pick up a client. It is worth keeping a log-book of mileage in the car and worth consulting with your accountant as to what expenses you can claim for the car.

3. Training

Take the opportunity to sign up to any professional training courses that might advance your career or give you some kind of professional accreditation. These are all tax deductible if they are related to your field of business.

4. Hiring Professionals.

If you are a self-employed freelancer or contractor you are allowed to deduct costs for any babysitters, nannies and day-care that you use while you are working. Equally importantly you should also claim for the use of any professionals who you employ to keep your business running smoothly, from legal professionals to accountants to sub-contractors. All business-related employment should be discussed with your accountant.

5. Stay Up to Date with Information on Tax Credits, Tax Rules and Tax Solutions.

Freelancers and contractors have a number of unique tax solutions open to them. It is important to keep up to date with all of them – there is, for example, a great deal of income tax relief available in the form of tax credits. Talk to your accountant about claiming all that you are entitled to. Similarly, look into all the possible tax solutions on offer. In the UK for example, contractors can choose any number of options from Managed Service Companies to Umbrella Companies to Employee Benefit Trusts, all of which reduce the tax burden for consultants and freelance workers. These and many more areas are worth looking into with an accountant so that as a freelancer you make the most of the latest tax relief and tax legislation.

Author Information

Alex Simmonds is a journalist and copywriter living in the UK. He can currently be found writing a daily blog on contractor news, offering updates on legal and financial issues affecting the contracting sector.

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Categories: Career Planning