Hello JA Customer,
Yes, as an independent contractor you will be able to deduct any expenses you have in connection with your IC income. That would include such things as your mileage to and from client locations, business use of cell phone, the percentage of rent and utilities as it relates to the percentage of the home you use as a business office, the cost of your business cards and business advertising, the cost of business licenses you must hold, and things of that nature.
As far as your contract position versus the IC position, it appears you will come out well ahead with the IC position, at least once you sell your home in TN and make a permanent move to NC where you will not be making both a house payment and a rental payment.
As an IC making $70 and hour for 40 hours a week, that comes out to $145,600 for the year. And of course any expenses you have to deduct from that amount will bring your actual net taxable income down from that amount.
The biggest additional expense connected with being an IC versus an employee is the fact that you become liable for the full share of SS and Medicare taxes instead of splitting those with the employer. So you will be paying an extra 6.2% for SS tax on your first $106,800 of earnings and an extra 1.45% for Medicare tax on all of your earnings, which is normally paid by the employer. This would come out to $6,621 extra you will pay for SS tax and a maximum of $2,111 for Medicare. And even that Medicare is based on the full $145,600 at 1.45%, and that amount will likely be lower after you deduct your business expenses.
But at the very most you would end up paying an additional $8,732 to cover the SS and Medicare taxes normally paid by the employer. Since the amount you will be paid as an IC is $48,600 higher than what you receive as an employee, that additional income more than covers those additional taxes, so this is a smart move for you.
Thank you JA Customer