It’s tax time again!  Time to get your all your forms together and figure out how much you owe or are due in return from the IRS.  As an independent contractor or small-business employer, this can be a very stressful time of the year.  And contractors need every bit of help they can get to maximize their cash by effectively managing their tax burdens and protecting themselves against tax increases and requirements.

Your insurance agents want you be the most successful and profitable contractor possible, so as you sit down to plan next quarter or next years taxes, contractors should keep in mind the following tax tips:

  1. Check Your IRS Employment Status – Ensure you are properly classified as a business owner or an independent contractor (NOT an employee) with the IRS. Use Publication 1779 and determine if you are properly classified and update your status to reflect your independent business.
  2. Establish Automatic Savings for Estimated Tax Payments – Set money aside from each paycheck so you have enough to cover your estimated quarterly tax payments and aren’t surprised by a large tax bill at the end of the year. Use form 1040ES to determine your estimated tax liability so you know how much to save from each payment you receive for your services.
  3. Keep Track of Your Business-related Expenses – Some of those expenses are deductible both in your itemized deductions on Schedule A, and on Form 8829, Business Use of Home, if you work out of your home. Keep your receipts for at least 3 years in case the IRS decides to audit you.
  4. Make the Most of Available Deductions – It is important to know what deductions and tax credit you qualify for in order to reduce your tax bills and boost your refund. You may be able to deduct expenses such as insurance premiums, gifts for clients, a portions of personal vehicle costs, rent or mortgage payments, utility bills, repairs and maintenance on spaces used for business, as well as mortgage interest if you’re a homeowner.As an incentive for investment in equipment, contractors may be allowed to deduct half of the cost of qualifying property in the first year of use, and then depreciate the remaining half of the asset over its normal useful life. Careful planning is required to make sure each deduction is right for you. Tax experts can provide helpful insight that might keep you from paying more tax penalties or being audited by government agencies.
  5. Consider Tax Advantage Benefits & Compensations – No longer can contractors revert to past practices of awarding large bonuses to retain key employees. This There are numerous vehicles for contractors to offer additional benefits beyond profit-sharing and pension plans and receive tax credits which can immediately lower your tax liability. In addition, contractors will be providing employees a powerful incentive to remain with the company by partnering with your insurance agent to offer affordable health, dental, vision, and life insurance plans.
  6. Consider Restructuring or Establish a Business Entity – Consider establishing a separate entity which owns or leases assets used in the course of business to significantly reduce sales-and-use taxes. Or organize a pass-through entity which aligns the corporate and individual tax rates to protect from expected rises in future individual tax rates. Contractors should be looking at their business structure while keeping future ability to restructure.

These six tips will help you save on your taxes so you have more time and money to focus on the day-to-day projects that matter.  Speak with your tax planners, risk management teams and insurnace specialists to ensure your business is prepared for the risk of excess tax liabilites.