With growing numbers of Americans working full- or part-time as freelancers, there are important tax implications. Knowing what can be written off can save freelancers thousands of dollars annually when they file their income taxes.
Our favorite tool for freelancers to track their expenses is AND CO by Fiverr, which is free to use. But some deductions are non-cash expenses, so likely aren’t tracked in your accounting software regardless of which tool you use.
Here are a few of those most overlooked tax deductions for freelancers.
Home Office Deduction
If you work from home, whether you rent or own, you can deduct a portion of your home office. It needs to be space that’s used solely for work, however. You also need to not have any other fixed place where you conduct your business in order to qualify for the deduction.
IRS Form 8829 calculates the total deduction for expenses such as mortgage interest, property tax, repairs, cleaning services, utilities that are related to the space used “exclusively and regularly” for the administration or management of your business. If you don’t want to track the detail of home office related expenses, you can use the simplified method instead and apply the standard rate prescribed by the IRS against your square feet of work space to come up with your tax deduction.
Mileage and Other Travel Expenses
Whether you’re a driver for Uber or Lyft or you use your car to visit with clients, the mileage and wear & tear are deductible. You can claim a standard deduction of 54.5 cents per mile for 2018 (increasing to 56 cents per mile in 2019) or you can always track your actual expenses.
Other travel expenses can also be deducted, including:
- Event, conference or trade show tickets and registration fees
- Hotel bills
- Airline and local travel costs
- 50 percent of your business meals
Your laptop, camera, car or desktop computer may be the lifeblood of your freelance work. Under the Tax Cuts and Jobs Act of 2017, freelancers can enjoy added benefits that lower the effective cost of acquiring these assets.
The new guidelines allow you to write off the entire purchase price of qualified equipment as long as it’s put into use before December 31 of that tax year. Qualifying purchases include computers, office equipment, office furniture, software, personal property used for your business and vehicles used for business.
This is a major change from previous tax laws, which placed the first-year depreciation rate at 50 percent.
What’s more, improvements made to a business property also qualify.
For freelancers not covered by an employers health plan, premiums for health insurance, including medical and dental, and long-term care, are deductible. These deductions only apply if your freelancing business turns a net profit. Other insurance premiums can also be deducted, including liability, workers’ compensation, malpractice and property coverage.
Most other deductions that freelancers can take are typically classified in their accounting software. AND CO by Fiverr helps you fit all your expenses into the proper tax code classifications, which include:
- Advertising. Any brochures, business cards, print or online ads, sponsorships or swag are deductible, whether used for physical or digital promotional work.
- Contract Labor. If you hired a freelancer to design your website, create your business cards or build your business an app, you can deduct theses costs from your overall expenses.
- Hardware and Software. The costs of your smartphone, laptop, tablet and the software used on those devices may be deductible.
- Interest. If you’ve taken out a loan to help fund your freelance business, you can deduct any interest paid.
- Membership Dues. If you belong to a professional organization that helps with your freelance work, you can deduct any membership fees. Other fees related to professional development, such as conference attendance or work-related educational expenses, are also deductible.
- Office Supplies. Those orders of pens, paper and printer toner add up. All of these items can be deducted when used for your freelance work.
- Professional Services. If you use an attorney, accountant or other professional-service provider as part of your freelance business, you can deduct the costs of those services.
- Repairs and Maintenance. If you’re a photographer and your camera breaks, or your laptop needs to be repaired, those expenses can be considered in adding up your business deductions.
- Research. Any research materials, tools or expenses that you used in completing your freelance work are eligible for an IRS deduction.
- Transaction Fees. Many businesses pay freelancers via PayPal or other third-party payment providers. Often these services will charge a transaction fee that a freelancer can deduct.
To keep more money in your wallet while self-employed, you have to maximize all available tax deductions. Using an accounting software like AND CO ensures you categorize all expenses. But your deductions don’t end there, since some deductions are unlikely to be tracked in your software. Make sure your tax filing solution doesn’t miss out on any of these savings!
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