Medical Transcription Work and Tax Deductions
If you work in medical transcription as an independent contractor, you will have to pay your own taxes. To pay as little in taxes as you legally can, you have to know about deductions that can lower your bill. You should always check with a tax advisor and not rely on advice from the internet anyway. Some of the things you’ll want to investigate include:
Home-office deduction: The home-office deduction allows you to deduct a portion of the cost of maintaining your home or apartment from your taxable income. For example, if your qualifying home office takes up 10 percent of your home, you get to deduct 10 percent of your electricity bill, 10 percent of your rent, 10 percent of your insurance policy, plus additional items.
If you’re a homeowner, you can deduct even more (say, 10 percent of that new roof and 10 percent of real estate taxes). It can add up fast. IRS Publication 587: Business Use of Your Home lays out the rules and calculations.
Homeowners should be aware that taking the home-office deduction can have tax consequences years down the road. When you eventually sell your home you’ll have to recapture part of what you deducted in previous years.
The details go beyond the scope of this article, but essentially you may end up paying more taxes on profits from the sale of your home than you would have without the home-office deduction.
Self-employed health insurance deduction: As of 2010, if you’re self-employed, you can deduct the full cost of health insurance you purchase for yourself, your spouse, and/or your dependents. This only applies if you aren’t eligible to participate in a health plan offered by an employer (yours or your spouse’s). This is not a typo — it’s true!
Retirement contributions: Saving is rarely painless, but it can be a little easier when it comes with a tax deduction. As a self-employed person, you get to take advantage of particular types of tax-advantaged retirement savings accounts.
They go by cryptic and clever acronyms, like SEP (rhymes with pep), IRA, and SIMPLE. See IRS Publication 560: Retirement Plans for Small Business to pick the one that will best help you deposit and deduct.
The variety of deductions potentially available to you will likely change from year to year, so be thorough in your research.