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Working from home as a Freelancer is a great opportunity and comes with many benefits – no expensive business outfits, set your own schedule, set your own rates (sometimes), and even enjoy extra family time too.
But did you know there are more than 13 different tax write-offs you can claim come tax time?
First, you need to know what information you’ll need and what forms to file, right?
First, you’ll need all your 1099-MISC from all your clients, you get these as an independent contractor for any work over $600. If you got paid through PayPal, you should print off your 1099-K on your account under “Reports”.
Then you need all the receipts of all your expenses – gas, supplies, travel expenses, etc. Basically, for everything that I’ll discuss below.
You’ll need to fill out a 1040 Schedule C (or Schedule C EZ) for all your freelancing income and expenses.
Now on to the deductions:
1. Your Office
If you have a designated space in your home, or even rent an office space somewhere, you can claim this on your taxes.
If you go the simplified route you can claim $5 per square foot of home used for your business, up to a maximum of 300 square feet. This space must be exclusively used on a regular basis for your business only. So, a desk in a spare bedroom will not count.
You fill this out on Line 30 on your Schedule C.
2. Advertising & Marketing
As a freelancer you should have an online presence – a website, a portfolio, a blog – someplace to drum up business.
You can claim all the costs of your website hosting, domain name, and any online tools you use such as MailChimp, HootSuite, or LinkedIn memberships.
Any products you create for advertising and marketing can be write offs too. Business cards, flyers, media kits, social media ads, and many more. Essentially anything you paid for to get your name out there can be claimed.
Enter this amount on Line 8.
3. Research Materials
As a freelancer, you know that research is a huge part of the job. You need current information, statistics, and facts to back up anything you write about.
Research material can include paid website access to articles, cost of products you purchased for review articles, recording software to record interviews you’ve conducted, and anything else bought to support your writing.
These deductions can be made on Line 38.
4. Travel & Meals
This is tricky to claim when working as a freelancer, but if you have very concrete evidence, signed receipts, it may be accepted.
You’re allowed to deduct the costs of traveling to a job or to meet with a client – except as a commute to and from an office. Travel expenses such as flights, hotel room, car rental and even dry cleaning can be claimed.
You can also claim 50% of any meals taken with clients.
This will be entered on Line 24A & 24B.
5. Education & Certifications
If you took any classes to improve your freelance business – writing, marketing, design – anything to make your job better, you can claim those on your taxes.
Any costs for obtaining certificates in your field or to enhance your business knowledge can be written off. This also goes for any licensing and registration costs you had to pay.
You cannot claim classes unrelated to your field (a gardening class if you’re a computer programmer, for example), or any classes that train you for a different career.
You enter this expenses in Part V – Other Expenses (which, when added up, is entered on Line 27a).
6. Equipment & Supplies
Since you work for yourself, you got to buy all your own equipment and supplies, but luckily thee can be written off too.
Essentially any equipment or supply that is needed for you to perform your job can be claimed – computer, printer, cell phone, internet and so on. For any hardware and software usage, I suggest keeping a logbook of work done on these products may help with the IRS if any problems occur.
However, you do need to keep work and personal expenses separate as it gets tricky claiming a cell phone expense if you use it a lot for personal calls.
This amount goes on Line 18.
7. Insurance Premiums
The different insurance premiums you pay for your freelance business can be claimed on your income taxes.
The different insurances you can claim include:
- Health Insurance
- Liability Insurance
- Malpractice Insurance
- Home Insurance (percentage of your office space)
- Workers Compensation
- Auto insurance (covered more below)
These would have to be in your name, your “company” name, or cover only you and any employee. You cannot claim any insurance that’s shared with family members.
Add up all your premiums and fill in Line 1 of Schedule A (for Health Insurance) and on Line 15 on Schedule C for all other insurance.
8. Legal & Professional Services
Of course, as a freelancer, we don’t know how to or don’t want to handle, all the different aspects of running our own business, this is when we hire others to help.
Claim the fees from your lawyer, accountant, webmaster, or other professionals that helped maintain your freelance business and career.
This amount goes on Schedule C’s Line 17.
9. Unpaid Invoices
If you’re unlucky to get a client that has not paid their invoice for work you have done for them, you can claim it on your taxes.
This is claimed as “bad debt” and can be tricky to claim, but if you can provide proof of no payment (repeat invoices), and you can only claim it if you use the accrual method of accounting.
First, you’ll need to claim the amount as income on Line 6, then claim it as Other Business Expenses in Part V.
10. Contract Labor
In the off chance that you get really busy as a freelancer – a dream right? You may need to hire contract workers to help catch up with the workload. The monies paid to them can be written off.
You can also write off any costs paid to other contract workers such as a graphic designer for your logo, a web designer for your site, or anyone else that’s not counted as legal or professional help. Think of all those Fiverr gigs you bought.
Add up all the costs and claim it on Line 11.
11. Retirement Plan
When working for yourself, you can either work past standard retirement age, or plan to retire early, the latter sounds much better though.
The best option as a freelancer for a retirement plan is a SEP IRA. This plan was designed specifically for the self-employed and small business owners where you can contribute up to $53,000 annually. All of this is deductible.
Enter any SEP IRA deductions on Line 14.
12. Vehicle Expenses
Separate from travel expenses, you can claim fuel and maintenance on your vehicle only if you use it for your business.
There are t ways to process deductions:
- Use Form 1040 Schedule C Line 9 and multiply the miles you drove this year by 56.5 cents, or
- Use Form 4562 and fill out Section B and itemize everything in more detail
13. And Everything Else
Here, I’ll list a few more deductions you may be able to claim on your 1040 Schedule C form:
- Membership Dues – Belong to any organizations that helps you with your freelancing? Deduct the membership fees in Part V.
- Interest – If you got a loan to establish your freelance career or company, claim the interest on Line 16.
- Transaction Fees – You can claim any credit card or PayPal transaction fees in Section V.
- Taxes – The IRS lets you deduct federal tax, state and local tax, and a percentage of your property tax on Line 23.
- Licenses – If you’re in a field that requires a license to work, you can deduct this cost on Line 23.
- Repairs & Maintenance – If you had to get your laptop, camera, or anything else you need for work repaired – write this off on Line 21.
Now let’s look at what you do need to pay:
Taxes You Owe
Don’t forget you do need to pay taxes as well, there’s a 15.3% self-employment tax. This covers your portion of Social Security and Medicare deductions that would have been deducted from your paycheck with a regular employer. This percentage also covers your portion as “employer” because as a freelancer you’re both employer and employee. (Crazy, I know).
The good news though is that if you’re filing a Schedule C you can deduct half of this tax!
Essentially, you’re trying to lower the amount of taxes you owe by filing as much business expenses and claims as you can. But you’re only allowed those that are “ordinary and necessary” for the operation of your business.
If your freelancing career is well-established, then you may want to consider creating a LLC since this could lower the amount of self-employment taxes that you’re eligible for.
Keep it straightforward, have all your receipts, and filing your freelance taxes should be easy. But to be on the safe side in case it gets too complicated, seek a professional to work it all out for you (then claim that as an expense).
Check out these other resources:
- Creative, Inc.: The Ultimate Guide to Running a Successful Freelance Business
- Make Money As A Freelance Writer: 7 Simple Steps to Start Your Freelance Writing Business and Earn Your First $1,000
- Creativity Is My Business; A Financial Organizer for Artists, Musicians, Photographers, Writers & Other Talented Individuals
- Taxes: For Small Businesses QuickStart Guide – Understanding Taxes For Your Sole Proprietorship, Startup, & LLC