Generally, we can define tax deduction as an item that can be subtracted from a person's taxable income to reduce their overall tax liability to the state. There are two methods of tax deduction, the first being a single deduction at a fixed amount and the second being itemized deductions mentioned on Schedule A of IRS Form 1040. Some typically itemized deductions include charitable fits, unreimbursed medical expenses, mortgage interest, state and local taxes, etc. Now that we have dipped our feet into tax deductions let us dovetail into the nitty-gritty of the phenomenon.
DEDUCTIONS THAT EVERYONE SHOULD CONSIDER FOR THE UPCOMING TAX SEASON
Some of the standard tax deductions that American taxpayers can consider are-
Up to USD 2500 of student loan interest
Charitable donations
Up to USD 10000 of state and local taxes
Investment losses
Gambling loses
Medical and dental expenses exceeding 7.5 percent of the adjusted gross income
Contributions to a Traditional Individual Retirement Account (IRA)
It is noteworthy to remember that most of the tax deductions are mentioned in Schedule A of Form 1040. However, there are some exceptions to consider. For example, citizens must use Form 8949 and Schedule D to report investment losses and Form 5498 to record IRA contributions. Now, let us look at tax deductions for freelancers and independent contractors.
TAX DEDUCTIONS FOR 1099 EMPLOYEES
The proportion of 1099 workers – freelancers and independent contractors in America- is increasing at an unprecedented rate. According to the Pew Research Study, more than 15 percent of Americans identify as self-employed. Although freelancing is all about freedom, they are taxable individuals, and luckily, some tax deductions apply to them. Some of the standard tax deductions available for freelancers are –
Home Office expenses include utilities, rent, mortgage, cleaning supplies, etc.
Internet and telephone bills are used in business operations from home.
Office supplies such as equipment
Cost of vehicle used for business purposes
Health insurance premiums deduction and much more
Now that we know in detail about tax deductions, let us understand the importance of a tax deductions calculator for freelancers.
IMPORTANCE OF TAX DEDUCTIONS CALCULATORS FOR 1099 EMPLOYEES
Statistics suggest that 75 percent of freelancers and independent contractors overpay their quarterly taxes, as they do not consider deductions. Thus, it is in such a context that a tax deductions calculator comes to the rescue. Without further ado, let us look at some of the veritable benefits of the tax deductions calculator.
Saving of Money – Using a tax deductions calculator can help a freelancer save up to USD 3700 on average.
Saving of Time – Freelancers and independent contractors do not have to spend hours computing the relevant tax deductions as a calculator can do the same in minutes.
Immaculate Accuracy – The possibility of human errors in calculating deductions is eliminated with the help of a deductions calculator.
Affordability – An AI-powered tax deductions calculator is much more affordable than a professional tax consultant.
So, there we have it, a brief overview of tax deductions and the importance of a deductions calculator for freelancers.
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