7 Commonly Missed and Miscategorized Freelance Tax Deductions4 min read
Freelancing means freedom in a lot of areas of our lives. We can set our own work hours within reason, live anywhere around the world, and generally, come to work in our pajamas or our favorite Star Wars T-shirt (today’s features Admiral Ackbar).
But things get a bit more serious when it’s tax time, especially for freelancers. As you certainly know by now, your clients aren’t going to taking money out of your paychecks the way a traditional employee would. It’s up to you to keep track of your earnings every year in order to know how much money you need to either in estimated taxes or in your year-end tax form.
However, as a self-employed worker, you’re entitled to a number of write-offs much like if you owned a brick-and-mortar business. Knowing when to use these write-offs, and when not to try and use them, can be the difference in hundreds or even thousands of dollars in tax money owed each year.
Related: 2018 Tax Policy Changes: Should Freelancers Structure as an LLC or S-Corp?
So, what counts as a freelance deduction?
With many more people working from home, the IRS actually revamped this stipulation in the last decade to make it a lot more clear-cut. Quite simply, the space you use for your freelance business/office is tax deductible – meaning the square footage as a percentage of your rent or mortgage cost. You can also deduct the same percentage from your electricity bill, gas bill, and Internet bill assuming you use a computer for your work. But realize that this is a percentage, not the entire cost of your rent for a year. You might think your white lies might make it past the IRS filters, but when you’re claiming you use all 1,500 square feet of an apartment for a home office, you’re playing with fire.
If you use a laptop, desktop, or any other personal computing device more than 50% of the time for freelance work, you can write off the value when you buy it new. Don’t get crazy though. Your PlayStation 4 doesn’t count. Neither does the DVD player you got for the kids for the car. And don’t think you can get away with writing off the same computer year after year.
Health Care Premiums
If you pay for your own health insurance through ObamaCare or a private insurance company, 100% of the premiums can be written off your freelance taxes. This does not apply if you’re on your spouse or another family member’s insurance coverage and will come up as a red flag if you try and claim it.
Cost of Employment Search
This is a doozy if you use it correctly against your freelance tax filings. The IRS allows you to write off the cost of finding a job, which used to mean buying stamps and nice paper to mail out resumes. Today, however, it can mean memberships to freelancing sites like Upwork and FlexJobs. For job marketplaces that shave take a percentage of your profit, that percentage taken is also classified as the cost of looking for jobs, as it’s part of the cost of membership. Make sure you can track and prove how much money you made from sites that take a percentage so you can confidently prove it in case you are audited.
Supplies and Tools
Since most of us aren’t carpenters or welders, we don’t tend to think in terms of tools we’d use on a job. But if you’re a graphic designer who bought a licensed copy of Adobe Illustrator this year, guess what? That’s a bonafide tool of the trade you just installed on your computer. Remember, this is just for things you buy specifically for work. Even trying to justify Microsoft Office can be a tricky situation since there are free alternatives available all over the place.
Advertising and Web Domains
If your print up business ads, pay for Google Ad Search, design banner ads or have your own website, any of those expenses can be written off. Note this is only for your BUSINESS website. Your Green Bay Packers fan site doesn’t count here. Keep the tax write-offs specific to your freelance operation or this could backfire quickly.
If you’re taking classes that have a direct impact on you getting better at your profession or enhance your business savvy, those are deductible as well. It doesn’t matter if you’re taking classes online or in person, as long as you can prove a connection between the coursework and what you do for a living, it’s absolutely a write-off. Remember, job-centric classes only! Your underwater basket-weaving course remains purely recreational.