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Originally Posted On: The top freelance tax deductions you need to know | The Hectic Blog (hecticapp.com)
You can reduce your taxable income when you know and keep track of the expenses you can deduct. Here are the top freelance tax deductions you need to know.
With the start of the new year, many of us are starting to think about our tax calculations. As a freelancer, this can be a more complicated prospect for you than for most. You don’t have an employer handling your tax withholdings for you, and setting that money aside yourself can be painful.
Luckily, there are ways you can reduce the amount you end up owing in taxes. Read on to discover some of the best freelance tax deductions you should be taking this year.
One of the biggest deductions you can take as a freelancer is for your office space. If you have a dedicated space you use to work from home, you can claim expenses related to maintaining that space, including a portion of your mortgage, insurance, and electricity bills. However, this must be a dedicated, separate space that is used only for work.
You can also deduct the cost of any office supplies you have to use in your freelance work. This may include paper, pens, sticky notes, paper clips, and, most importantly, printer ink. Make sure you track these expenses throughout the year so you can deduct them when it comes time to do your taxes.
As a freelancer, your computer is likely one of your most valuable assets, and you can deduct expenses related to it from your taxes. If you’ve had to buy a new computer this year, you can deduct that expense from your taxes. You can also deduct the cost of any software subscriptions or purchases you’ve made this year.
One of the primary downsides of being a freelancer is that you don’t have employer-provided health insurance. If you pay for your own insurance, however, you can deduct those expenses from your taxes. This benefit may not extend to dental or accident and injury policies, however.
If you have to travel for work in a traditional work setting, your company covers your expenses. As a freelancer, you can deduct those expenses from your taxes. This can help cover the costs of attending trade shows and industry conferences and can include airfare, hotel costs, and more.
You’ll also have to buy your own promotional materials as a freelancer, including business cards, advertising flyers, merch, and more. But those expenses also fall under the deduction category. You may also be able to deduct the costs of any digital advertising you do to promote your business.
Professional organization dues
When you’re marketing to new clients, one of your primary hooks maybe your professional associations. But professional organization dues aren’t cheap, to say the least. Luckily, you can deduct those and any other professional membership costs you may have from your taxes this year.
When you launched your freelance business, you may have taken a small business loan to get it off the ground. Unfortunately, you can’t deduct the entire cost of repayment for that loan from your taxes. But you can use the amount of interest you’re paying the bank as a standard deduction for self-employed people!
Internet and phone bills
As a freelancer, internet service is important for far more than catching up on the latest from Outlander. Your internet service and your phone are critical parts of your business, especially since we’ve all moved to working from home. Accordingly, you can deduct your internet and phone bills as part of your business expenses.
Depending on how your freelance clients pay you, you may face transaction fees from different payment services. These are usually small, but they can add up, and you may not want to add them to your clients’ bills. Instead, deduct them from your taxes as a routine business expense and get some of that money back.
Your freelance business may require you to maintain specialized equipment starting with your computer and extending to CNC machines or other crafting equipment. Unfortunately, this equipment depreciates in value over time, meaning you lose some money on them each year. You can calculate the amount your equipment has depreciated and deduct that from your taxes.
In the previous year, you may have had to contract out some work for your freelance business. This can include anything from hiring a graphic designer to create your logo to paying for tech support. You can deduct these costs from your taxes as part of your business expenses.
Much like the health insurance situation, as a freelancer, you don’t have access to the retirement benefits traditionally employed people do. Saving for your own retirement is smart, but it can be expensive. You can deduct these expenses from your taxes as part of the costs of self-employment.
Whether you’re drawing up client contracts or registering your business as an LLC, you may have had to hire a lawyer this year. Luckily, this is considered a part of your business expenses. Track how much you spend on legal services and deduct that from your income tax for freelancers next year.
As a freelancer, it’s more important to you than most to stay at the top of your game. In many cases, this may include continuing education or professional development courses to help you hone your skills. You can deduct the price of these classes from your taxes as part of your business costs.
You may also have to research various topics as a part of your freelance work, and you may not always be able to rely on free resources. You might need to maintain subscriptions to archival websites or buy journals, books, or magazines. Keep up with these expenses, since they’ll qualify for tax deductions, too.
If your freelance work requires you to drive every day, you may be surprised to learn that you can deduct vehicle expenses from your taxes. This can include any car payment you may have, as well as maintenance and gasoline expenses. Unless you have a dedicated work vehicle, however, you will not be able to deduct all of these expenses for your car.
Sometimes, no matter how hard you try, you just cannot get a client to pay a bill. Luckily, you can deduct the cost of those unpaid invoices from your taxes. There is a catch, however – you have to claim that invoice as income for you to deduct it as an expense.
Depending on the kind of work you do, you may be required to maintain a certain license or certification. Those annual licensing costs can add up, especially if you have to pay for continuing education to maintain them. But all of those expenses can be deducted from your freelance taxes.
You might be surprised to learn that you can deduct the cost of some of your meals from your taxes this year. The catch is that these meals have to be strictly business-related; you can’t deduct the cost of that sushi lunch you bought to celebrate wrapping up your first project. But if you took a client to lunch as part of the marketing process, you can deduct that expense.
To promote your business online, you may need to maintain subscriptions for a variety of services. This can include email marketing programs, billing apps, bookkeeping programs, productivity products, and more. Keep a record of all these costs and deduct them as part of your business expenses at the end of the year.
If your freelance work involves creating tangible products, you’ll likely have materials costs. Ideally, you should make up these costs, plus your labor and some profit, in the price of the items you’re selling. But you can also deduct project materials costs from your taxes since they are a business expense.
Discover more freelance tax deductions
As a freelancer, your taxes can seem harsher for you than for most – after all, you work hard for every dollar you earn. But the good news is you also have access to several business deductions that can make that cost easier to bear. Pretty much any money you spend to keep your business going can qualify as a business expense, so be sure to keep solid records and deduct everything you can.
If you’d like to discover more freelance tax deductions and tips, check out the rest of our site at Hectic. We’re here to help freelancers just getting started to get off on the right foot. Get early access to our program and start managing your entire freelance business the smart way.