Taxes are a natural part of any individual’s professional life. As an independent adjuster, not having to work under a particular organization sounds awesome but it also comes with the burden of sometimes having no clue about the process of filing one’s taxes. Today we focus on some of the best ways to save money on your taxes.
Forming Your Own Business Entity:
A lot of independent adjusters choose to function as a whole business entity. This helps them qualify for certain tax benefits as well as provides them protection for their assets. Working as a sole proprietor or forming an S-corporation will allow you to save on your taxes significantly. The introduction of Qualified Business Income Deduction or QBID law in 2017 served as a blessing for independent adjusters as it restructured tax percentages and capped the amount to 20% of one’s total income.
Hiring A CPA:
As an independent adjuster, functioning as a business entity, hiring a professional such as a (Certified Public Accountant) to handle your taxes and figure out your deductions will help you save a significant amount of money.
Unlike a regular accountant, CPAs are licensed by the state and they have to keep themselves updated with the latest tax laws. Hiring a CPA will be beneficial in the long run as they will help in making more sense of the QBID law for it can be quite complicated. All you require is to document all your expenses and keep a record of your receipts and the CPA will help in determining the possible deductions for you.
Documenting Your Income and Expenses:
In order to determine your tax deductions, a CPA would require you to keep a record of your expenses. There are a variety of records that would be included by a CPA. From your travel expenses to office supplies to educational requirements to office space, everything should be present. Here is a comprehensive list for you to compare with:
Travel Expenses:
- Mileage driven
- Parking Fees
- Tolls
- Diesel
- Registration Fees
- Repairing Services
- Flight tickets
- Taxis
- Hotel Bookings
- Tips
- Baggage Fees
- Meals and Entertainment
Schedule C and Form 2106 for your travel and related expenses on hotels, meals, etc. Do keep in mind that any lavish expenses won’t be counted as valid deductions.
Office Supplies:
- Pen
- Paper
- Ink
- Additional Stationery
- Document Folders
- Printers/Scanners
- Files
- Computers
- Software
- Internet Fees
Schedule C must be used to determine your deductions for office supplies. Your computer must have at least 50% of its operations for business purposes.
Educational Expenses:
- State Licenses
- Renewal Plans
- Courses
- Certifications
- Conference Registrations
- Subscriptions to websites
- Magazines
- Books
Schedule A for your educational expenses. Please note that only continuing education will be considered as a deduction and any education that qualifies you for a new career will not be included.
Office Space:
- Office Rent
- Utilities Within the Office
- Repainting and Servicing Costs
- Cleaning and Repairing
- Plumbing costs
Form 8829, Schedule C and Schedule A will be used to determine your deductions for your office. If your office is inside your home, you need to measure the amount of space used solely for your professional use in order to determine the deduction.
Insurance:
- Health Insurance
- Life Insurance
- Dental Plans
- Auto Insurance
- Homeowner’s Insurance
Schedule A, Form 2106 and Form 1040 will be used for insurance purposes. Keep in mind that this will only cover insurance for your business.
Using applications such as Mint, Expensify, and Evernote Scannable to keep a track of all your receipts will make tax deduction a painless process for you.
Keeping these pointers in mind will help you save a lot of money in the long run and make the best out of working as an independent adjuster and growing in your career.