We work hard to earn money and then spend it to improve our way of life. Giving a large portion of that money to someone else, even the government, is unacceptable to many people. Of course we have to pay taxes for the development of infrastructure for ‘us’ only. But that doesn’t mean we can’t save up where possible, legally of course. IT freelancers and contractors are typically paid directly without taxes or other withholdings. This means the IT freelancer has different tax considerations compared to a full-time employee. Here are a few ways how technology freelancers can save taxes.
1. Filing Status
The term “freelancer” is defined as a person who is self-employed, or does not work for any organization for a very long time. As this term is not one that is used in the tax code, the smart thing to do is refer to yourself as “self-employed” or “independent contractor.” Sometimes you can be both as well. A self-employed person, as the name suggests, works for himself and not for an external organization, which is why he is exempted from paying taxes as an “employee.” An independent contractor is someone who supplies goods or provide services to another business entity.
As he is not a permanent employee in any organization, he is not liable to pay employee tax either. Keep in mind that you should file as being “self-employed” or as an independent contractor only if you are one. Trying to swindle your way out of paying taxes will result in the IRS coming down like a ton of bricks on top of you.
2. Employment Status:
Being self-employed, the IRS requires you to pay self-employment tax, which includes Medicare and Social Security tax. You are eligible to pay this tax if your net earnings are more than $400. However, as a 1099 worker (specifically in the US), you are permitted to deduct business expenses, for example office rent, materials, electrical devices and legal consultation fees. If you are working from home, you can deduct money in the form of utility bills, rent, vehicle ex
penses and mortgage.
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3. Education and training:
In certain cases, you can deduct taxes in the form of an educational course or a training program. However, for this purpose, it is necessary for the course or the program to be in line with your business. Trying to learn a skill that does not match the nature of your business will entertain no tax deduction whatsoever.
4. Hire an accountant:
Managing complex accounts and tons of other paperwork can be a tough ask for you, given that you have other things to worry about regarding your business. Hiring an expert for this purpose can greatly decrease the burden on your shoulders, plus your accountant can give you insight on the tax world and allow you to legally pay less tax than you employed counterparts.
Decide Consulting is a software and IT Staffing firm based in Houston, TX. Founded by veteran software consultants, Decide has developed proprietary methods for finding problem-solving IT personnel. Our Software products focus on the Environmental Health & Safety (EHS) and Healthcare markets.