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Are you an independent contractor? Have a side hustle? As with all workers, you pay taxes on earnings after you take offsetting deductions. Here are 5 tax tips that could help you avoid problems and maximize available tax breaks:
1Don’t hide taxable income: While it is very compelling to hide some of your income, don’t do it. For example, if you receive payment in the form of goods or property or even services, it is taxable. This is certainly true for cash tips. Believe me, the government has ways to find out about these things.
2Report large cash transactions: Any business, including independent contractors, who receives more than $10,000 in a single transaction or deposit is required to file form 8300 (“Report of cash payments over $10,000 in a trade or business”) within 15 days of receiving the payment. This applies to cash and not checks or credit card payments.
3Maximize your business deductions: As a general rule, you can deduct all of your ordinary and necessary business expenses incurred in your business including deductions for your vehicle IF you keep a good mileage log like Taxbot. So, if you are an Uber or Lyft driver in 2020, you can claim a flat rate of 57.5 cents per business mile PLUS related tools, parking and even some interest payments on car loans to the extent that your car was used for business.
4Avoid estimated tax penalties: I don’t like penalties of any kind. To avoid any estimated tax penalties, you will have to make payments to the IRS and some states quarterly or adjust your withholding on any job that you or your spouse has. Use IRS Form 1040 ES “Estimated Tax for Individuals” to help figure these payments.
5KEEP GOOD RECORDS: I can’t emphasize this enough. Keep records for tracking taxable income and deductible expenses including a good, compliant mileage log. Generally it is best to record your transactions on a daily basis.
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