For freelancers, tax season is a busy and stressful time. Between making sure they paid enough in quarterly taxes and trying to add up all of their income and expenses, many freelancers miss taking advantage of tax deductions that could lower their risk of owing thousands of dollars to the IRS.
If you’re a freelancer, or plan on becoming one this year, here are some common tax deductions for freelancers that you don’t want to overlook.
- Common Tax Deductions for Freelancers
- 1. Your Office Space
- 2. Your Office Supplies
- 3. Your Health Insurance (And Other Insurances)
- 4. Your Hardware and Software
- 5. Your Website Costs
- 6. Your Business Bills
- 7. Travel Expenses
- 8. Advertising And Marketing
- 9. Business Memberships
- 10. Any Professional Development And Educational Expenses
- 11. Legal And Professional Services
- 12. Fees, Interest, And Taxes
- 13. Depreciation Costs
- 14. Contractors
- 15. Your Retirement Plan
- 16. Vehicle Expenses
- 17. Meals
- 18. Other Supplies
- Items You Can’t Deduct
- Tax Deductions for Freelancers: Are They A Bad Thing?
- Summary: Tax Deductions for Freelancers
Common Tax Deductions for Freelancers
Don’t miss out on claiming these deductions!
1. Your Office Space
Whether you rent an office space or have a dedicated office space in your home, you can deduct it!
This is ultimately one of the most overlooked tax deductions for freelancers because many of them work from home and don’t realize that it counts. And, if you have a home office, you can claim the deduction whether you own or rent your home.
The IRS simplified the process to make it easier to deduct your office, and you can claim $5 per square foot, up to 300 square feet. Easy right?
2. Your Office Supplies
If you purchase supplies for your office space, including pens, paper, printers, printer cartridges, and more, you can deduct all of those supplies as well.
Now, there are a few things to keep in mind when trying to deduct office supplies.
For one, if you’re purchasing office supplies, it’s important to keep the receipt. That way, you can offer proof of your purchases should you get audited by the IRS. It’s also helpful to track exactly how much you spent so you aren’t under or over-estimating.
Another thing to keep in mind is that the office supplies you purchase for the business must only be used for business purposes. In other words, if you buy a printer, the only items you can print are business-related items. Need to print off a form for your personal life? You’ll either need to get another printer or print at a local library/office that allows you to.
And remember that even if you don’t have a dedicated area for your office, you may still be able to deduct the cost of certain office furniture, like chairs, desks, etc. If you need to, you can always ask a CPA for help and advice on what is tax-deductible or not in your office space.
Tai Stewart, an Accountant, and owner of Saidia Financial says this about deductions:
“Freelancers have the opportunity to deduct a lot of different types of costs that can help lower their tax liability. For example, the tools that you need to do your job are usually deductible. Sometimes freelancers forget to write off costs like their monthly phone bill, but if that phone is being used all the time for business purposes, all or part of the monthly costs may be deductible. Keeping organized and keeping good records will help ensure that freelancers don’t miss deductions they are legally entitled to. Freelancers also should remember to write off those items they may pay for only once every year or so.”
3. Your Health Insurance (And Other Insurances)
If you’re a freelancer or self-employed, you may be able to deduct your health insurance. The IRS typically allows the deduction for self-employed people who pay medical, dental, or long-term care insurance premiums.
As a quick note, Eric Nisall, an Accountant and Writer, believes that it’s important to understand what the IRS means about the health insurance deduction:
“Perhaps the most unknown/misunderstood deduction is the Self-Employed Health Insurance Deduction; it’s complex, but the bottom line is that if you are self-employed you may be able to deduct your health insurance premiums even if you don’t itemize.”
4. Your Hardware and Software
Do you use a laptop, computer, phone, or tablet for your business? You might be abe to deduct those gadgets as business expenses. You can also deduct hardware like cameras, lighting, and more if they’re business-related.
As far as software, as long as you can prove that you need the tool or software in your business to work, you can deduct it. That can include apps and software like GSuite/Google Apps, Tailwind, Freshbooks, and more. If you use it in your business, and it’s a need, you can most likely deduct it.
Related Post: 20 Essential Tools for Virtual Assistants
Of course, the IRS isn’t stupid. So don’t try to claim apps like Hulu or Spotify as business expenses. Sure, you may be able to skate by for a year or two, but overall it is unethical to do so, and you could be setting yourself up for an IRS nightmare.
As a rule of thumb, don’t try to fool the IRS. But, if you keep a written log that details that you do use hardware and software for work too, you claim the business percentage. Before doing this, you should definitely double-check with your CPA.
You can also deduct repairs that you need to make on your computer, camera, or printer.
5. Your Website Costs
These days, websites are a necessity for many businesses. But domain costs, web hosting costs, and privacy protection costs can easily add up (especially if you have multiple websites). But luckily for you, these fees are business expenses and can be deducted as ‘Other expenses’.
6. Your Business Bills
If you need an internet connection or a cellphone plan in order to conduct business, you can deduct the costs of your monthly bills. If you use them solely for business, you can deduct the entire cost of the bill. If you use your phone plan or internet for personal and professional activities, you can still deduct a percentage of the expenses.
7. Travel Expenses
If you have to travel for business, like attending a conference, meeting up with a client, or traveling for sales, you can deduct most items during your travel time. If you drive, you can deduct mileage and/or the car rental (if you rented a car). You can also deduct flights, hotel rooms, meals, and more.
Just as a heads up, if you travel for work and pleasure at the same time, you can only claim the business-related costs as a deduction. For example, if you travel and attend a conference for three days, but then stay an extra two days to lounge at the beach, you can only deduct the costs you accrued during the three days of attending the conference.
8. Advertising And Marketing
When you have to purchase items like business cards from Moo, social media ads, or even paper materials for in-person events, you can deduct these expenses as advertising expenses.
It doesn’t matter if you advertised online or in-person, they count towards your deductions.
9. Business Memberships
Are you part of a group or club that helps you grow your career or business? You may be able to deduct your membership fees or costs associated with the membership.
For example, if you have to pay yearly dues, as long as the dues are business-related, you can deduct them. As always, keep receipts and make sure everything is legit.
10. Any Professional Development And Educational Expenses
Just like with travel and memberships, you can deduct professional development and educational costs. For example, enrolling in a class, attending a conference, or paying for a course, like $10K VA, all count towards professional development.
You can also deduct research material IF used for professional and educational purposes. For example, if you have to pay for an app or food to write a blog post or upload a YouTube video about it, that’s a tax deduction.
11. Legal And Professional Services
If you have to use a lawyer, accountant, or another professional for your business, you can deduct those costs. For example, having to use an attorney to file a trademark is considered a deductible expense.
If you have to use an accountant to file your taxes, that counts too. This is because of the fact that you’re using these professionals to propel your business forward.
12. Fees, Interest, And Taxes
Did you take out a business loan? Do you have credit or debit cards that you use for business purchases? Do you use PayPal to get paid? If you said yes to any of those, you can deduct these expenses when filing your tax return.
As a best practice, and to make organization easy, your bank accounts, credit, and debit cards should be for business only. If not, you can find yourself in a mess trying to organize business and personal expenses.
Any fee that you accrue via PayPal or other apps that charge transaction fees are considered tax-deductible. If you sell products, you can also deduct those fees.
For taxes, the IRS allows you to deduct:
- Taxes on the property of your business. Work from home? You can still deduct a percentage of the taxes, although you’ll have to configure it based on your office space.
- Federal unemployment tax.
- State and local taxes.
If you work in a field that you have to get a business license (plumbing, accounting, investor, etc), you can claim those fees as well.
13. Depreciation Costs
According to the IRS, Depreciation is an “income tax deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property”.
In other words, if you use expensive equipment like a truck (that’s only for your business), a specialized laptop, studio equipment, or more, you can get an allowance for the property over the years that it depreciates (or until you get rid of the item).
If you had to hire any independent contractors or freelancers for your business, you can deduct those costs. This includes freelancers like virtual assistants, contractors on Fiverr, and more.
15. Your Retirement Plan
Did you know that you can contribute to your retirement plan via a SEP IRA? And the best part? As a self-employed individual, you can contribute up to $53,000 annually. And every single dollar is deductible.
This is a great deduction to take advantage of, especially because it helps you prepare for your future too.
16. Vehicle Expenses
If you use a vehicle for work-related tasks, you can claim expenses like fuel, repairs, and maintenance.
The second would be to itemize your expenses. If you choose to itemize, receipts are extra important, so keep all of them handy.
You can not use both of these options, so pick the one that will give you the greatest return.
Meals are tricky when it comes to tax deductions for freelancers. As of writing this post, the IRS states the following:
You can deduct the cost of meals if it is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business.
18. Other Supplies
Do you have a product-based business? You can deduct the time and costs associated with selling your products. Now, you can’t deduct your inventory. But you can deduct the time it took for you to create your product, shipping supplies for that product, and even storage space.
Items You Can’t Deduct
Of course, while there are a lot of tax deductions for freelancers, there are some things that you can’t deduct. That includes:
- Moving expenses (even if related to your business)
- Business-related entertainment (like taking your client to see a musical)
- Commuting costs (unless traveling to meet a client or driving to multiple places for business)
- Beauty expenses (including makeup, clothes, and more, even if you need those items for your business)
Tax Deductions for Freelancers: Are They A Bad Thing?
Deductions exist for a reason. The government wants to help those people that pay for things to boost the economy (and that includes freelancers!). However, it is up to you to keep track of all of your business expenses, so you can deduct them from your taxes when the time comes.
If you forget these deductions, you can’t go back and claim them. You’ll have to wait until the next year to try again. So make sure you’re taking advantage of every deduction that you qualify for. It can be expensive to run a business, but that doesn’t mean you can’t use that to your advantage as a freelancer or business owner.
If you’re afraid of being audited due to too many deductions, don’t be. The chances of being audited are slim. And, if you’re keeping detailed records like you’re supposed to be, being audited won’t be so bad. Of course, you can also talk to a tax professional to help if this does indeed happen to you.
The key to not being audited (or surviving an audit) is to keep regular documentation and be organized. It’s also important to keep all tax records and tax type documentation for at least seven years, just in case!
Summary: Tax Deductions for Freelancers
Being a business owner is hard work, but filing your taxes doesn’t have to be. And with these tax deductions for freelancers, you’re bound to add some money back into your pocket.
If you need help with your taxes or tax deductions, it may be best to talk to a tax professional. Otherwise, keeping proper documentation and knowing what you qualify for is key.