Nobody has ever said that the tax code is easy to understand.
When these taxes involve freelance work, the tax code becomes that much more difficult to interpret.
Unfortunately, there are lots of freelancers who do not claim any deductions at all when they are filing taxes. With more people using freelance work as their primary source of income, this is alarming.
Therefore, all freelance workers need to make sure they maximize their tax deductions. If you are self-employed, then you need to know about the top freelancer tax deductions to make sure that you save as much of your income as possible.
By gaining a basic understanding of how income taxes work for freelancers, what you are allowed to deduct, and what you cannot deduct will help you save a lot of time when it comes to doing your taxes.
Furthermore, this will also help you save money on your feet last taxes. Let’s take a closer look at the top tax deductions freelancers should know.
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The Top Freelancer Tax Deductions
Regardless of whether you are looking for last-minute tax breaks for freelancers or are simply trying to plan ahead, there are several tax deductions that freelancers should make sure they know about. These include:
1. The Self-Employment Tax Deduction
The first tax deduction that all freelancers need to make sure they used is the self-employment tax deduction. With W2 jobs, this employment tax is split between the employee and the company.
Because freelancers are self-employed, they act as both the employer and the employee. Therefore, they are essentially paying this tax twice.
There is a deduction that allows you to deduct the employer’s portion of your self-employment tax.
Importantly, this deduction is only going to impact your income tax. It is a good idea to work with a tax professional, such as an accountant or the team from TaxSlayer, to make sure you are claiming this deduction appropriately.
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2. Office Supplies
As a freelancer, you run your own business. Therefore, your business expenses are tax-deductible. If you work in an office from home, you should keep track of your office supplies during the course of the year.
Office supplies is one of the most important deductions for freelance taxes. Some of the most common office supplies that freelancers use include:
- Purchasing a new computer that is used entirely for business purposes, such as writing
- Purchasing stamps to mail checks, invoices, and other items to business partners or customers
- Purchasing a new printer for the office
- Purchasing ink and paper for that printer
- Purchasing a new desk or a desk chair
Even smaller items, such as envelopes, can be tax deductible if they are used for business purposes. The IRS is rule of thumb is that office supplies are deductible as long as it is “ordinary and necessary” for your job.
Be sure to keep track of all of your receipts during the course of the year. Save them so that you can claim all of the relevant deductions for your office supplies.
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3. Tax Deductions for Health Insurance Premiums
A lot of people in this country get their health insurance through their job. Because freelancers are self-employed, they have to get their own health insurance.
Therefore, this is another business expense that may be tax-deductible. Whether you are purchasing your insurance on the marketplace, looking for COBRA insurance, or trying to cover the cost of health insurance in some other way, make sure that you keep track of how much you are spending on health insurance. These expenses could be tax-deductible.
If you have questions about health insurance and freelance taxes, it is a good idea to work with an accountant. The deduction you take on your health insurance cannot exceed your annual earned income; however, there are other caveats that may apply to the health insurance tax deduction for self-employed individuals.
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4. A Deduction for a Home Office
If you have a space in your home in which you work on a regular basis, then you may be able to claim a home office deduction.
Importantly, this space has to be used exclusively for business. If that is the case, then you may be able to claim a home office deduction.
There are two ways that you can claim this deduction. The first option is to use the simplified method. In this case, you claim $5 per square foot of your home office.
Then, you deduct a total from your income. There is another more complex method that you can also use as well.
With the other method, you are going to write off all expenses that are directly tied to that home office. This includes any maintenance on equipment in your home office, purchasing new equipment, new furniture, and utilities.
Importantly, if you go overboard with your home office tax deduction, this could be a red flag for the IRS and you might end up getting audited.
Therefore, it is a good idea for you to work with a trained tax professional such as the team from Intuit to make sure that you claim the home office deduction properly.
Even though you do not want to leave any money on the table, you also do not want to take a deduction for which you are not eligible.
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5. A Tax Deduction for Mileage
If you are self-employed, there’s a chance that you are doing a lot of driving for your business. The good news is that you are able to deduct any mileage related to your business. In 2019, this deduction was 57.5 cents per mile traveled.
This amount adds up quickly. Make sure that you keep up with changes in the tax code because there is a chance this deduction could change.
If you would like to claim this deduction, it is important for you to log this mileage carefully in case the IRS starts to ask questions. You need to log your starting mileage, your ending mileage, your starting point, and your ending point.
Furthermore, it is also a good idea to log the purpose of the trip and a simple notebook. This can be done the old-fashioned way or through a simple mobile app.
If you do not want to do all of the work to track your mileage, there is a simplified method you can use. Instead of deducting your mileage, you can deduct all of the expenses related to your vehicle. It is also possible for you to calculate how much money you will save using both methods.
Then, you can simply choose the one that works better for you. Be sure to speak with a tax professional such as an accountant from H&R Block if you have questions about claiming this deduction.
See Related: How to Register as a Freelancer
6. Other Business Travel
In addition to driving, if you are conducting other business-related travel, then you might be able to deduct these expenses as well.
Importantly, you need to make sure that this trip is strictly related. For example, if you are traveling to the Caribbean for a conference, this trip could also double as a vacation.
Therefore, there might be question marks when it comes to deducting the cost of airplanes, taxis, and hotel rooms. If you have any questions about this deduction, it is always a good idea to work with someone who specializes in personal taxes.
Even though there is a chance that this deduction could be substantial, it is important to save all documentation to back up this deduction. This includes not only the purpose of the trip at also receipts for airline tickets, hotel rooms, and taxis.
See Related: How to Become a Freelance Editor
7. All Marketing Expenses
Marketing is an important part of running a business. If you spend money on marketing, then you should keep track of these expenses so you can deduct them from your taxes. Some of the most common marketing expenses that you may claim include:
- Paying someone to start a website for your company
- The cost of maintaining this website, such as the cost of hosting and servers
- Expenses to develop fliers that may have been put up around town
- Money spent on pay per click campaigns online
- Expenses paid to a search engine optimization agency
- The cost of getting business cards developed
Every business is different so marketing expenses are going to be different for each company as well. Be sure to keep track of any advertising expenses that you pay so that you can deduct inappropriately from your freelance taxes. Rely on Tax Act for help if you have any questions.
8. Contributions Made To Retirement Accounts
One of the most important tax breaks for freelancers, it is important for you to make sure that you keep track of the money that you contribute to retirement.
Many people who are self-employed are eligible for something called a simplified employee pension plan IRA, usually shortened to a SEP-IRA. It is possible that you may be able to deduct up to 25 percent of your personal income if you contribute all of this money to your IRA.
On the other hand, the amount of money that you contribute to your SEP-IRA could have an impact on the amount of money you contribute to a regular IRA or a Roth IRA.
The good news is that the brokerage company that you used to manage your SEP-IRA is going to keep track of your expenses for you.
Depending on the other deductions you claim, there is a chance that this might impact the total amount of money that you are able to contribute to your SEP-IRA. If you go over this limit, then you might end up having to pay a penalty.
With this in mind, it is a good idea to work closely with a financial advisor or a tax professional from Liberty Tax to make sure that you are maximizing the contributions you can make to your SEP-IRA without going over the limit.
9. Your Professional Membership Dues
If you are self-employed, you may need to pay membership dues to a professional organization. For example, if you are a lawyer, a doctor, or a financial advisor, then you may need to pay dues to a professional fraternity.
These expenses are tax-deductible. While membership dues for social purposes do not count as deductions, dues that are paid to state boards, trade associations, or even the local Chamber of Commerce may be claimed as tax deductions.
Be sure to keep track of any dues that you pay throughout the course of the year and check them with a professional accountant to see if they are deductible.
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10. The Cost of Continuing Education
There are certain educational expenses that you could be able to deduct as long as they are related to your current job.
If you are planning on switching careers, then these educational expenses are not tax-deductible; however, if you have to participate in continuing education conferences, lectures, or examinations throughout the course of the year, there is a chance that these expenses may be tax-deductible.
Keep track of anything that you have to do during the course of the year that qualifies as continuing education.
Then, work with a tax professional at the end of the year and see if you can deduct these expenses from your taxes. Continuing education expenses can be exceptionally large.
Therefore, this could be one of the top freelancer tax deductions. Make sure that you understand which educational deductions are deductible with the help of trained tax professionals.
11. Your Internet and Phone Bills
If you use your internet connection for business purposes, or if you have a business phone, then you may qualify for a deduction.
Remember that you are only able to deduct the portion of your utilities that you use for business purposes.
The easiest way to handle this on your freelance taxes is to have a separate phone for business purposes. Then, you can deduct the exact cost of that phone from your taxes. You can do the same for your internet connection as well.
If you happen to work out of your home, then you need to keep track of your internet and phone usage as it relates to your business.
That way, you can handle these tax breaks for freelancers appropriately. Nobody should have to pay more in taxes than they are required to by law. Keep track of these freelancer tax deductions and make sure that you save as much money as possible.
When in doubt, remember to work with tax professionals who can point you in the right direction.