What are some tips for independent contractors?

This answer was provided by Mark Misselbeck, CPA, from Levine, Katz, Nannis & Solomon PC in Needham.

Q: I recently started work at this company that hired me as an independent contractor. I think I will be filing a 1099 at the end of the year and I am not familiar with what I can write off as a business expense since no taxes were taken out of my paycheck. Can I write off car repairs or gas if I use my car for work related purposes? What are some general tips that you can give me when I file? - Michael, Newton

A: The company that hired you will report what it paid to you in 2003 on a Form 1099MISC. You will report the amount that you received on a Schedule C that will be filed with your 2003 return.

You may claim business use of your car in traveling from your home to your client's place of business (or for other business travel), if you have as your principal place of business your home. You will need to be able to prove to the IRS, should they ask for it, the mileage that actually related to use of your car for business.

You may either use actual expenses (gas, oil, tires, taxes, insurance and depreciation) multiplied by the percentage use of the vehicle for business or you may use the standard mileage rate of $ .36/mile multiplied by the number of business miles you put on the car. You will need to make representations regarding use of the car on either page two of Schedule C or page 2 of Form 4562. You may want to request a copy of Publication 334 from the IRS (800-829-3676) or down load it from the IRS website.

You may deduct expenses for supplies, depreciate (or elect to expense) equipment and furniture used in your business, deduct 50% of business meals (but not meals you, alone, eat, unless you are out of town, overnight, on business), as well as long distance calls on your telephone (the base charge for a home line is not deductible, however, the base charge for a purely business line is fully deductible). Any fees paid for legal or tax advice related to your business are also deductible against your income from your business.

You are responsible for timely paying your income and social security taxes, since you are self-employed (no employer is withholding for you). You do this by making quarterly estimated tax payments using Form 1040-ES.

You will be able to deduct 100%, both on your federal return and your MA return, of your payments for your health insurance and you should check whether or not you qualify for the new health credit on your federal return (get Publication 4181), as well as 1/2 of the self-employment social security taxes that your will calculate on Schedule SE with your return (federally - only a maximum of $ 2,000 on your MA return), however, neither is a deduction that may be claimed directly against your business income. These deductions are only permitted after you calculate your business profit on Schedule C and report it on page 1 of Form 1040 - these deductions may then be claimed lower down on page 1 of Form 1040 - the different lines are offset just to the left and just above the subtotal line at the bottom of page 1 of Form 1040.