Tax season is a pretty big deal for independent contractors, here’s what you need to be aware of when filing your 2022 taxes this spring.
As an independent contractor, you probably stay more aware of changes to the tax codes than your friends who file a single W-2, and with good reason! Your attention could end up saving you money when you file. Each tax season comes with its changes, so here’s what you need to be aware of when filing your 2022 taxes this spring.
Tax Day
After two years of being delayed due to the pandemic, Tax Day has returned to mid-April. This year, Tax Day is on April 18, 2023. (If you live in an area recently affected by a natural disaster, such as Alabama, Georgia, and California, you may have the extended deadline of May 15. Be sure to double-check your region.)
Deductions
Vehicle Deductions: If you use the car for both business and personal use, only the business portion is deductible. Here’s everything you need to know about self-employed vehicle deductions. For further information, you can visit the official IRS page for vehicle deductions.
Electric Vehicle Deductions: The purchase of a qualifying electric vehicle in 2022 or 2023 may entitle you to a credit of up to $7,500! Click here for more details.
Medical and Dental Deductions: If the total medical/dental expenses you paid for yourself and your dependents exceeds 7.5% of your adjusted gross income, you can deduct the expense.
Deductions for Educators: Teachers can deduct up to $250 for classroom materials and other unreimbursed expenses.
For more information regarding recent changes and updates to the tax code, click here.
1099-K Delay
You might remember the talks of a $600 transaction threshold that had everybody worried about the possibility of receiving a Form 1099-K for their Venmo rent transactions. Because lawmakers had similar concerns, the rule has been delayed for a year. Now, you’ll only receive a 1099-K if you conducted $20,000 or more in transactions over Venmo, CashApp, PayPal, or the like.
You May be Eligible for Free File
The IRS Free File Program program offers free tax filing for people who earn $73,000 or less. If you’ve never taken advantage of this offering, it could be because you didn’t know about it. Tax preparation software companies purposefully hid this free service––and they got in trouble!
Audit Red Flags
While audits are rare, we still want to do everything we can to avoid them! The best thing you can do is keep excellent records and file your taxes honestly. That way if you ever face an audit, you have nothing to worry about. There are a few things you can do to help avoid an audit. This article advises on how not to commit audit red flags such as:
- Too many deductions compared to income. If you claim $50,000 in total income and $40,000 in deductions, that’s a red flag.
- Missing income. If a company issues you a 1099 and you don’t claim it on your end, the IRS will catch this mistake.
- Round numbers in your deductions. Real, honest deductions rarely total to a tidy $2,000. Keeping good records (the receipts!) will result in the actual figure, not a round estimate.
Additional Information From the ICBA
Tax season is a pretty big deal for independent contractors, which means every year we write multiple pieces for the toolbox aimed at helping our members file their taxes as painlessly as possible. Here are a few of our recent posts that may be useful to you.
If you’re wondering whether it’s worth it to hire a CPA, check out our interview with a tax preparation professional.
If this is your first year dealing with a 1099, you may enjoy our recent post about transitioning from a W-2 to 1099.
Finally, should you face an audit, here’s everything you need to know.