If you are a self-employed person who lives and works in the United States, you likely know how weird filing personal taxes can be. It’s certainly a lot easier if you work for a company and have taxes deducted from every single paycheck. There are many fewer decisions to make this way. But simplicity is one of the things you give up when you choose the life of a freelancer, and there are many benefits to replace those. However, none of these are felt on tax day. Unless you understand freelancer taxes and have prepared throughout the year for this moment, you’ll probably have some challenges from tax day. If you haven’t filed your taxes yet, here are some important tax deductions freelancers can make.
- Your Office Supplies. It’s easy to buy office supplies without thinking twice, but you should always keep a record of every penny you spend on your business throughout the year. So next time you’re at target and you pick up some pens, or the next time you make a big order with new stationary suppliers online or in person, keeping a receipt of the exchange will be a lot of help come tax time. The key is to keep your receipts. If you file your taxes and you end up audited (which, admittedly, is a very unlikely thing to happen for someone who isn’t making lots of money), you’ll want to have a record of each of the expenses you deduct. We’ll remind you about this throughout this guide.
- Your Home Office. There’s a lot of confusion about this one. Some people have rooms in their homes which they use for work every single day, but which serve other purposes as well. Can you deduct office space in your home? Well, it depends. You’re only supposed to deduct expenses related to spaces that are only used for work, but the IRS isn’t going to expend endless resources to check either. It’s up to you. If you have a home office that has home storage in it, or gets used as a spare bedroom a couple of times per year, you can probably get away with writing it off. Just be honest about the square footage and utility use of this space, and try not to exaggerate your claims. If you were to be audited, it’s much better if that which you deducted very much resembles the reality of the situation.
- Your Work Computer. Lot of people who work for themselves buy a computer for work, but because it is in their home while they are not working, they don’t know if they can actually write it off. There is some grey area in this. Think about it, if you were working in an office on an office computer, you would occasionally use that device for personal uses like checking your email, going on Facebook, or buying a plane ticket for your vacation. This just happens. Nobody partitions their personal and work internet use 100%. If possible, try to have a work computer that really is just for work, at least as much as would be the case if you were working in an office. Deductions for an office computer, as mentioned above, should represent the reality of your situation, and you should be able to defend your claims in the (still, unlikely) event that you were ever audited.
- Work Meals. This is another one that causes a lot of confusion, but because state and federal taxes for freelancers can total almost 50% per year, you’ve got to take everything you can get, including meals. Everyone’s situation is different, but generally you can feel confident about deducting expenses for meals in which you worked or talked about work in some way. You usually need to be with a coworker, or be in a digital conference of some kind, for the food and drink costs to count. Always make sure to get a paper receipt of the meal, or have a digital copy sent to your email. On a paper receipt, scribble a short explanation of who you were with, what you talked about, and how this was related to your job. Keep these receipts in a safe place. In the event that you were audited, you would have to provide these receipts as written evidence that the claims you made on your taxes represented the actual historical record. It almost will never come to this, but if you are worried that your deductions will be challenged, having the receipts will be your Ace in the hole.
- It’s common for people with traditional employment to travel for business and be immediately reimbursed for their driving, plane flights, and everything else. Not so for solopreneurs. If you travel for work, it’s up to you to see to it that you get restitution in the form of tax deductions. Do this by keeping track of when, where, and how far you travel in a written form. If you want to get super specific about it, you can even take pictures of your odometer on your phone. You’ll have to submit some general information about your vehicle when actually deducting these expenses. Be just as judicious about recording your flight and other travel information. These expenses can rack up quickly, so don’t neglect to write them off when tax time comes around.
This is by no means a complete list, but it shows you some great examples of the kinds of things you can and should be deducting as a freelancer. Freelancers pay a lot of taxes (we already mentioned above that in states like Maryland, it’s not uncommon or people to pay as much as 48%). For this reason, you’ve got to do your due diligence in order to keep as much income as possible. You don’t have an employer to look out for you best interests on this one, so be vigilant in your record keeping and list deductions with confidence. You’ll be rewarded with lower taxes and/or a much higher return. Good luck!