Believe it or not, tax season is already approaching us. For those on a long term, consistent, career path this is usually an easy process that involves a simple W-2 form and some free or inexpensive tax preparation software.
In hindsight, tax prep for freelancers can be complicated.
An article by Intuit QuickBooks points out that self-employed people typically can write off expenses that fall under the following three stipulations:
- Things you use exclusively in operating your business
- Things you eat in the course of doing business
- Things related to the exclusive business use of the place where your business operates
While these prerequisites are often times a bit vague, the guidelines for the self-employed workforce are outlined by the IRS website.
General Deduction Guidelines for Freelancers
The first step is to account for your yearly income. Then begins the arduous process of calculating deductions. While this may be as painstaking as your most stressful freelance endeavors, taking the time to do this accurately is crucial when it comes to saving you money.
Jonathan Medows, certified public accountant with an emphasis in taxes for freelancers, explains:
“The whole point of deductions is to reduce your tax liability.”
Tax deductions are things you spend money on that can be subtracted from the overall taxable income of a person. For example, if you made $50,000 in freelance income this year, and deducted $10,000 you would only be taxed on $40,000. This means less income taxed, the more you are able to deduct.
It’s important to maintain a system of organization while calculating expenses and deductions related to your freelance work.
As highlighted by a post from LearnVest, the following are things to take into consideration:
- Business cards, online ads and other tools used to promote yourself and your business
- Business insurance
- Interest paid on your business credit card or business loans
- Lawyer fees and other professional services
- Rent or dues on a workspace
- Repairs for your computer, camera and other business-related equipment
- Routine office supplies like pens, paper, staples, etc.
- Travel costs like plane and train tickets
- Business meals with clients and other entertainment reasonable for your business
Home Office Related Deductions
There are two specific requirements for your home to constitute as a deduction. According to the IRS website, they are as follows:
- “Regular and Exclusive Use: You must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room.
- “Principal Place of Your Business: You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home, but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction. For example, if you have in-person meetings with patients, clients, or customers in your home in the normal course of your business, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business. You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or the only place where you meet patients, clients, or customers.”
All physical offices supplies can be tax write offs if they are used for your freelancing endeavors, everything from pens and paper, to printer ink.
Expenses for Electronic Devices
Your electronic devices and supplies can also be deducted, including:
- Computers and upgrade costs
- Flash drives
- Printer ink
- Anti-Virus software
- All other software licensing fees
Niche Items Related to Writing Topics
Do you consider yourself an entertainment buff and write articles about film, television, or music or some other speciality? Certainly consider writing expenses related to these niches when filing your taxes. If you can prove that they are relevant to your writing and you’re good about saving receipts, a surprising range of expenses can be written off. Here are several a lot of freelancers often don’t think about.
- Books and audiobooks, periodicals used for research
- DVD’s, CD’s, purchased digital music
- Magazine subscriptions
- Movie tickets
- Website domain costs/fees and development including design
Travel and Related Expenses
The costs of gas, airline tickets, and rental cars are all typical expenses for business related travel. Additionally, highway tolls, parking fees, hotel expenses, and even food and drink costs for business trips can be tax write offs. Also consider whether the price of laundry expenses on the road are relevant tax breaks.
- Graphic designer fees
- Photographer fees
- Business interest/banking fees
- Accounting fees
This is by no means an all-encompassing list. There are many deductions that will be eligible for freelancers. Just as freelance work itself is creatively driven, identifying legitimate tax deductions can be a creative process. It’s all on you to stay systematic, keep track of dates, and determine exactly where your money went over the course of the year.
Furthermore, there are many situations that exists that may provoke an audit for freelancers and the self-employed workforce. These things could end up causing you much frustration, so educate yourself about audit triggers and avoid the common mistakes that many people overlook. You be thankful in the long run!
Best of luck to you this tax season, and happy freelancing!
Robert Parmer is a freelance writer and student of Boise State University. Outside of writing and reading adamantly he enjoys creating and recording music, caring for his pet cat, and commuting by bicycle whenever possible. His contact info includes: firstname.lastname@example.org | twitter: robparmer