Starting a REAL Home Business – A Checklist for Independent Contractors

Many home business people are independent contractors.  That is, they are not employees of another business, but they work for themselves and get paid through a contract, not a paycheck.  But if you are an independent contractor, you are running a business.  And you need to act like it.

I talked to someone last week who has been working as an independent contractor.  She said she wasn’t looking forward to paying income taxes because she had made a lot of money.  When I asked her what expenses she had for her business, she looked at me blankly.  Turns out she hasn’t been keeping track of expenses for deduction purposes.  And a bunch of other things!

So, for you independent contractors, here is a checklist of steps you need to take to be sure you are considered a separate business and to take advantage of tax deductions from your business:

• Clearly set your business up as an entity - sole proprietorship, LLC, corporation.  Do the paperwork and make sure you file with your state.  If you are a sole proprietor, get a business license if you need one in your city, and file a “fictitious name” statement.  In other words, make sure you are separate from the business where you are working as an independent contractor.
• Use your business name for all transactions.  Ask your contractee to pay your business, not you.  Set up a separate business checking account where you deposit your checks.  Get business cards in your own business name and use these cards.
• Keep track of your business expenses.  If you travel (not back and forth to work) keep track of trips.  If you have marketing expenses, keep track of those too.  Get a separate phone for business and pay for it from your business account.  All of your expenses go to offset your business income for the year.

Remember, if you don’t have expenses to deduct, all of your income will be taxed. Check with your CPA to see if you can take a home office deduction and for other deductions.

I will talk more about home office tax deductions as we get closer to tax return time.  For now, get busy and turn your home business into a REAL business.