Final answer:
The correct statement is that independent contractors can claim allowable business deductions. They handle their own tax obligations, which includes paying self-employment taxes, and can deduct ordinary and necessary business-related expenses to lower taxable income. Independent contractors must maintain accurate records for tax reporting purposes.
Step-by-step explanation:
The true statement regarding independent contractors and income taxes is that independent contractors can claim allowable business deductions. Unlike employees, independent contractors must handle their own tax obligations, which includes paying self-employment taxes, making quarterly estimated tax payments, and keeping track of their income and expenses for tax purposes. Independent contractors are responsible for their own Social Security and Medicare taxes, and they can deduct business-related expenses that are considered ordinary and necessary for their trade or business. These deductions can be for the cost of goods, home office expenses, mileage, and other work-related expenses.
Taxable income for independent contractors is calculated by subtracting business deductions and exemptions from their adjusted gross income. It's important to understand that while independent contractors have distinct tax obligations, they are similarly required to pay federal income taxes just like other taxpayers. The flexibility in managing taxes comes with a responsibility to maintain accurate records and comply with tax filing requirements.