By Jack Sartory
Being a freelancer is hard!
You’re responsible for handling everything from client billing, advertising, to customer service.
Want to know the toughest part of being a freelancer? You’re responsible for managing all your taxes – from compiling your earnings and expenses to completing and filing IRS forms.
With your already busy schedule, that’s probably the last chore on your mind.
Luckily, there are a ton of potential tax deductions that you use to shrink your tax bill.
Be proactive. Turn tax management into an opportunity to save thousands of dollars per year (and make more money).
Here are 7 essential tax deductions you should utilize to minimize your taxes and maximize your income.
1. Home Office Deduction
If you use an exclusive area of your home to conduct your business, you may be able to deduct related expenses on your tax return as a home office deduction. The space has to be fully dedicated to business though, which means your couch, exercise room, and kitchen table don’t count. If you are allowed to take the home office deduction you can take it in two ways, simplified and regular:
If you use the simplified method, you can take a deduction of $5 per square foot for each square foot of your home used for business purposes (up to 300 square feet). If you use the regular method, keep track of all your home expenses, including maintenance, repairs, utilities, real estate taxes, rent, etc. so you can deduct the portion of these expenses related to your home office. Use Form 8829 to calculate your home office deduction.
2. Legal and Professional Services
Freelancers can usually deduct 100% of legal and professional fees to the extent they are an ordinary and necessary part of operations. Legal and professional services is a broad category that generally includes expenses for your lawyer, accountant, and any other professional consultants you may hire.
3. Software and Online Service Subscriptions
Many freelance workers subscribe to online services or purchase software to support their everyday work, project management, invoicing, and productivity, just to name a few. FreshBooks, Harvest, Hurdlr, or Squarespace could be considered software or online service subscriptions. Since these platforms are often critical to what freelancers do, they are generally fully deductible.
4. Business Meals
As a self-employed business owner, having meals with customers, clients, or employees may be deductible as a business expense, so long as the meal was directly related to or associated with your business. Generally, the deduction for business meals is limited to 50% of the total cost (including tax and tip).
5. Physical Supplies
Oftentimes designers and other visual creatives need physical tools to aid in the creation process. These expenses can be fully claimed on your Schedule C as a necessary business expense.
6. Online Advertising
Freelancers frequently run online advertising campaigns to promote their websites and grow their brands. The IRS allows you to deduct advertising expenses that are directly related to your business as long as you can reasonably support it on your tax return. For example, if you spend $250 a week in targeted Facebook ads for a month, you can deduct $1000 on Line 8 of your Schedule C at the end of the year.
7. Website Expenses
Any self-employed professional knows that having a polished website is crucial to acquiring new customers. But did you know that you can generally deduct the costs to acquire, design, maintain, and market your website?
While many of these costs are deductible, the IRS treats certain website expenses differently. Generally, the money you spend on development may need to be capitalized and deducted over several years, while the money you spend on operation and maintenance can be expensed in the year incurred.
Now that you’re armed with some key deductions to shrink your tax bill, you can start keeping track of all of your expenses to make sure you’re taking home as much true profit as possible.
Interested in discovering even more tax deductions for freelancers? Check out these lists of deductions specifically for freelance designers, developers, writers, marketers, and real estate agents or a complete breakdown of all possible tax deductions for freelancers.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Jack Sartory helps freelancers achieve financial success at Hurdlr, a mobile finance app for freelancers. Prior to joining Hurdlr, Jack served Fortune 500 clients as a technology consultant with a “Big 4” accounting firm.