It's the beginning of a new year. If you haven't yet started gathering your tax information, you better get started! Whether an independent, freelance, or contract welder you may be able to claim tax deductions for items related to your source of income. Those working for an employer should receive a W-2 Form, Wage and Tax Statement soon. Payments that you receive from welding done outside of a "day job" may be considered self-employment income; therefore it would probably be wise to use a w-4 calculator to factor that in. Those who do work for others may receive a 1099-MISC, or Miscellaneous Income form. If you earn $400 or more in the course of a year, you must pay self-employment tax on income reported on a Schedule C, Profit or Loss from Business.
In order to reduce your tax liability you may be able to deduct un-reimbursed, job related expenses. Itemized Deductions on a Schedule A or as part of a self employment expense on Schedule C could include subscriptions to trade journals, union or association dues, welder's insurance premiums, equipment or tools, safety equipment, uniforms, fees, licenses, certifications, and/or education. Ask your accountant how to best classify each expense. You'll need receipts to prove each expense.
Those who are currently job hunting or did so during 2011 may be able to deduct job seeking related expenses. If you were temporarily unemployed, even if you did odd jobs, you may be able to deduct some expenses. Education that is pursued while one is job hunting may also be deductible. If you took work related classes or seminars that were refreshers or informational sessions on current developments, you may be able to write them off. Classes taken that would qualify you for a different job, may not be deducted.
Those filing a Schedule C, Profit or Loss from Business may be able to deduct: bad business debt, vehicle expenses and/or mileage, employee salaries, employee bonus or commission, legal fees, accounting fees, equipment rental fees, business travel expenses, advertising, tool and equipment repairs, office supplies, and more.
Specific Deductions
Clothing is a difficult deduction. There is a fine line between clothes, safety gear, and work equipment. The IRS says that clothes bought and worn solely for business can be deducted, this includes uniforms. But if the clothes can be worn outside of business it cannot be deducted. Some welders have been denied deductions for steel-toed boots and flame resistant clothing. Equipment purchased for the sole purpose of the welding business can be deducted. Mileage deductions can be taken if they are put on an individuals' vehicle during work and an employer doesn't reimburse the individual. Miscellaneous deductions can be taken. They must be necessary, reasonable, and used in the ordinary course of business.
*Please note: I am not an accountant. (Although I have had accounting jobs and I pay self-employment taxes.) My best advice is to meet with a Certified Public Accountant. They'll help you learn how to keep records and what can be deducted.
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