Freelancing and Taxes: What Is and Is Not Deductible?

Tax deductions rarely stress you when formally employed because your employers automatically make them from your monthly salary. However, freelancers may find it challenging to comply with tax regulations because they need to organize themselves and pay the taxes quarterly without any employer initiating the process. 

Knowing what is and is not deductible helps you save a few pence that you could divert to something else and better your freelancing. Still, this article shares essential advice. 

You need to talk to your accountant or tax lawyer to know which deductibles you qualify for.

1. Home office or workspace deduction

If you are freelancing from home and dedicate a section of your house to your home office, you may qualify for the home office deduction. The taxmen establish how much belief you can get by measuring the home office’s square footage and dividing it by the square footage of the entire house. The resulting percentage equals the amount of the rent or mortgage deduction you will have.

2. Phone deductions 

This tax-deductible applies for freelancers who do their jobs using their phones which they also use for personal stuff. The US IRS allows them to deduct part of their phone bills to cater to these expenses. 

3. Office supplies 

Suppose, in the course of your freelancing, you buy office supplies like pens, pencils, staples, stapling pins, books, ink cartridges, and many others from time to time. In that case, you may qualify for the office supplies deductions. This provision allows freelancers to deduct the cost of any office item they use for freelancing.

4. Internet service

Internet service cost is also a deductible freelancers can benefit from. The internet service deductible allows businesses and freelancers to deduct the cost of network connectivity as office or utility expense. 

However, suppose you use the same connection for freelancing and personal use. In that case, you can deduct only a percentage of the bill and not the total amount.

5. Self-employment tax deduction

In the US, the IRS requires freelancers to pay the 15.3% self-employment tax. However, freelancing does not have an employer, who would usually take up half of the tax. 

Therefore, there is a 50%-57% tax deduction freelancers can take off from the self-employment tax. Talk to your accountant to know whether you qualify for it, and if not, get to see what you can do to prepare.

6. Health insurance premiums

As a freelancer, you have no employer, hence no health insurance coverage, and you need to pay for it. Therefore, you are allowed to deduct the health expenses from your tax. However, this deductible should not exceed your total income earned throughout the year.

7. Travel 

As a freelancer, you will have to travel from time to time, and the travel deductions got you covered. To benefit from this tax deduction, you must keep the air ticket printouts and bus receipts. In addition, the trips must be entirely business-related.

8. Business technology and equipment

This tax-deductible allows freelancers to take off the expenses of buying business items like a computer, especially if it is expensive. Two options are available for this; deducting the entire cost one, or the depreciation technique, where the price is spread over the years. The latter will likely apply if you anticipate that the income and bills will be higher in the coming years. However, many opt to deduct the whole amount once.

9. Mileage

If you qualify for the mileage deductions, you can subtract mileage expenses at the rate of $0.56 per mileage, which is a good amount and typically adds up. You can make this easy by using software like the QuickBooks Self-Employed to log your details or jotting mileage details, including the start and the end, the destination, and the purpose of a book.

10. Hardware and software

Suppose your freelancing job requires you to source particular hardware and software. In that case, you may qualify for the hardware & software deductions. However, if they are costly, talk to your accountant about whether the one-time deduction or depreciation will be the best option.

11. Advertising and marketing expenses 

Does your freelancing job involve advertising and marketing? These could make up the advertising and marketing deductions. Many marketing and advertising activities include radio ads, TV, print, promotional events, direct marketing, marketing collateral, and public relations. 

12. Business website 

Some freelancers have a website for freelancing. The business website deductions cater to the cost of designing, developing, launching, managing, hosting, and updating the website. This, too, does not have to exceed the total annual income.

13. Liability insurance premiums 

These deductions mainly apply to freelancers who pay state unemployment tax or insure their employees with the workers’ compensation policy. These liability insurance deductions come in handy with one issued and will offer protection against a lawsuit.

14. Education 

Are you taking certification or qualification to sustain freelancing? You can qualify for the educational expense deduction, provided that the pursuit is directly related to your current gig and not a new carrier. Make your work easier by keeping a good track record of your educational expenses to claim the deductions throughout the year.

15. Membership dues

Suppose you are a member of an organization or a club directly related to your freelancing job and pay for the membership. In that case, the cost may make up the membership deductions. However, country clubs do count. In addition, state boards, Chamber of Commerce, or trade association dues can be catered to and deducted from your tax.

16. Retirement contributions

As a freelancer without a formal, you are responsible for your retirement contributions and account. Therefore, the amounts you pay towards retirement benefits are deductible. Make your work easy by maintaining a record of your IRA or SEP contributions and claim deductibles while filing taxes.

The bottom line 

Although freelancing is a beautiful gig that makes you your own boss, it also comes with tax obligations that you must attend to. This article has shared what you need to know about what is and what is not deductible. Focusing on the deductibles helps you maximize deductions and save money. Talk to your accountant and know which ones to pick to enjoy what you do while getting paid for it.

Rose Rosie is a writer for the personal finance website, Joy Wallet, which provides readers with useful information, resources, and tools to help maximize their financial fitness. 

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