Tax Deductions for Freelancers You Should Know About If You Work From HomeSmall Business Taxes
Money Done Right does not accept sponsorships to promote particular products or services. However, we may receive a commission if you purchase or sign up through links on this page. Here's more information about how we make money.
Do you work as a freelancer? Then you probably know that a good rule of thumb is to put aside 25% – 30% of your earnings toward your quarterly tax payment.
But beyond that basic rule of thumb, you’re probably wondering what deductions you can take as a freelancer.
And you’re not alone. According to the latest Freelancing in America 2018 report issued by Freelancers Union, more than 56.7 million Americans chose freelancing as a method of earning a living in 2018.
Among the main benefits, most freelancers treasure the flexible schedule, the increasing growth opportunities, and the improved work-personal life balance.
Probably the only thing all freelancers dread is filing their taxes. The freedom and benefits you gain by working on your own tends to get costly.
The Internal Revenue Service sees freelancers as self-employed and asks them to pay their taxes as such. The amounts can get pretty high, unless you are versed in tax deductions for freelancers.
Even if an accountant handles your taxes, it helps to know what type of expenses you can deduct. After all, you are the one planning and tracking expenses and paying taxes.
Simplify Your Taxes
If you want to simplify your expense tracking, accounting, taxes and deductions, and financial reporting, we recommend Hurdlr.
Returning to your tax filing duties and the deductions you are entitled to as a freelancer, the best starting point for our tax money-saving guide would be Schedule C, or Form 1040 – Profit and Loss.
It is the form most freelancers and small businesses have to fill in, and it covers the available tax deductions for freelancers. We will review the relevant deductions categories and teach you how to save tax money in the following lines.
Be warned that the advice and tax deduction tips below can save you huge amounts of money. In our opinion, there is nothing more fun than saving money. If you have doubts, try Long Game!
Tax Deductions Every Freelancer Should Be Aware Of
If you spend money to advertise your services as a freelancer, you can deduct those expenses from your taxes.
The advertising tax deductions for freelancers can cover anything from Facebook and local media ads, local events sponsorships, and advertorials on relevant third-party websites, to business cards, give-away items and brochures.
Just make sure you have the means to prove that you incurred to respective costs to advertise your services as a freelancer.
The next time you order advertising materials, like personalized prints and planners, consider using money-saving apps like Rakuten (formerly Ebates).
2. Car and Truck Expenses
If your work involves visiting clients or locations and you use your car to get by, you can deduct the corresponding expenses. There are two options available:
- Calculate your transportation expenses by multiplying the number of miles driven throughout the year by $0.575, and add tolls and parking fees.
- Fill in form 4562. Its section B lets you itemize expenses with gas, repairs, depreciation, and car insurance.
Even though car-related expenses are deductible, you should use every opportunity you have to save money:
- When it comes to car insurance, MetroMile is an excellent option for those who drive rarely and on short distances.
- Those who rely on their cars to get by both in everyday life and in work-related situations can use Insurify to identify the best car insurance deals.
- Anyone can save money on gas using Get Upside.
3. Contract Labor
As a freelancer, you occasionally need help from other professionals. Think accounting, legal counseling, graphic design, blogging, and more, depending on the specific of your business.
The best examples for this deductions category are Logan Allec’s CPA services for bloggers and other creatives.
I help freelancers with their bookkeeping and tax filing, and my clients deduct the costs of services from their due
If you use expensive equipment in your activity, like a high-performing laptop, a high-end camera, or lighting gear, you may be able to depreciate your equipment over a certain period.
It can range from one to five or even ten years, depending on the equipment in question and what you use it for. The bottom line is that you’ll be able to upgrade your equipment regularly and deduct its cost from your due taxes.
To enjoy incredible savings and rewards on your new equipment, don’t forget to:
- Shop through a website like Rakuten or Affinityy (click here to learn how to earn a $20 cashback bonus!)
- Use Butterfly Saves eCodes to save up to 50% on your purchase!
5. Employee Benefit Programs
This solution only works if you have people working for you and the possibility to prove your employer/employee relationship. If you decide to offer them benefits like health insurance, you can deduct the costs from your taxes.
6. Pension and Profit Sharing Plan
Besides employee benefits, you can deduct any retirement or profit sharing plan if you have employees but that is quite rare among freelancers.
Depending on your line of work, if you need/decide to get insurance for liability, malpractice, workers’ compensation, or your home office, you should be happy to know these costs are deductible as well.
You cannot deduct your own health insurance, though. To boost your health, consider apps like HealthyWage, which reward you for meeting health and wellness goals.
If you needed to take a loan in order start your business, pay for your education (it should be related to your activity) or fund a business/related project, the interest you pay on it is deductible as well.
You can even deduct the interest you pay on your credit card debt or on your mortgage, for the part of the property that you’ve turned into a home office.
Since the interest you pay on your loans depends on your credit score, it pays to monitor your credit history. We recommend Credit Sesame.
9. Office Equipment and Supplies
Expenses with printers, paper, books, writing and professional instruments, software, and everything else required for your office activities are all deductible.
For example, software like photoshop and image costs are common tax deductions for freelance graphic designers. Canvas, paints, makeup products, and costumes are common freelance artist tax deductions.
10. Vehicle, Machinery, or Leasing Equipment
We’ve already mentioned that you can deduct equipment costs above, but you should know that leasing expenses qualify for deductions as well. Therefore, if you leased your car or some professional equipment, remember to deduct the leasing from your taxes.
11. Business Property Expenses
If you pay rent for an office, or you have a website, you can deduct your expenses with them as well. Since such costs can be pretty steep, it helps to look into saving solutions.
As for your website, once you have it up and running, most of your related expenses will go towards blogging and webhosting.
For blogging, we recommend taking matters into your own hands, and our Blogging Done Right post on How to Start a Blog can help you. When it comes to hosting, we recommend Bluehost.
12. Maintenance and Repairs
Depending on the specifics of your activity, your equipment may require periodical maintenance or repairs.
Don’t hesitate to deduct the corresponding expenses from your taxes! You can include related supplies as well.
For example, if you are a photographer, the paper you print your photos on and the cartridges and toners for the printer can be deducted as well, if you haven’t already included them as office supplies.
If you sell journals or you specialize in bookbinding, the paper, plastic, or leather you use are deductible as well.
13. Taxes and Licenses
The IRS lets you deduct several types of taxes, such as:
- Real estate taxes corresponding to your business property (your home, if you’ve set up your office there)
- Federal unemployment tax
- Any state or local taxes you pay as seller of services or goods, as long as you didn’t collect those from your buyers
14. Travel and Accommodation
As a freelancer, you may have to travel to events and conferences related to your profession. If you do your travel and accommodation expenses are deductible.
Just make sure not to deduct transportation costs twice, and have justifying documents, just in case the IRS suspects your trips were for pleasure and not for business.
To get the best deals on your trips and accommodations, we recommend creating an Airbnb account and using it to plan and book your trips.
You can also become an Airbnb host and make money by providing accommodation to others, either in your own home or on another property you own.
15. Restaurant Meals and Similar Expenses
You can deduct restaurant meals if, through the nature of your business, you have to meet clients at restaurants to discuss business. To determine whether your expenses are deductible, make sure they meet the following criteria:
- They are ordinary, common and accepted expenses in your profession
- They are necessary, appropriate, and helpful expenses
- They occurred in a business space or their goal was to intermediate business or help you accomplish particular business goals
If your activity does not justify restaurant meals and you want to avoid paying for those out-of-pocket, consider using Swagbucks to earn gift cards to your favorite restaurants.
16. Utilities Bills
Your office, whether set up at home or elsewhere, consumes utilities like electricity, water, gas, phone, and more.
If you have a home office, and you have not made arrangement for separate metering, you can deduct a percentage of the bills equal to the percentage corresponding to your office from the overall property.
You will not be able to deduct your phone bill if you do not have a separate line for your office, but you can still deduct long distance calls.
Until you figure out how to deduct your utilities costs, consider turning to Billhunters to negotiate lower rates.
Obviously, you can only deduct such expenses if you have employees.
18. Transaction Fees, Commissions, and Other Expenses
This category is wider and can include any fees and commissions you pay in order to be able to perform your activity as a freelancer.
For example, if you get paid through PayPal, you can deduct your PayPal fees.
This category basically includes all the expenses you cannot fit elsewhere on your tax form.
19. Home Office Expenses
If you’ve set up your office at home, all your expenses with it can fit into this category. Keep in mind that we’ve covered some of them before, and the IRS will not allow you to deduct the same expenses twice.
In order for your home office expenses to qualify for deductions, you may need to prove that the respective space meets at least one of the following requirements.
- It has to be your primary, exclusive, and regular business space
- It should not be used for other purposes
- You should not have another office or business space set up elsewhere (like a rented office)
There are three calculation methods for home office expenses:
- By surface – You determine the size of your office and calculate its percentage from your home or apartment. For example, if your office measures 200 square feet and your home measures 2,000 feet, you can deduct 10% of your indirect household expenses.
- By rooms – If your office occupies only one room, you can divide the overall household expenses to the number or rooms in your home to calculate the expenses you can deduct. For example, if your office occupies one room out of five, you can deduct 20% out of your indirect household expenses.
- $5 / square foot – The IRS has adopted a new rule according to which you can deduct $5 / square foot every year. Thus, if your office measures 100 square feet, you can deduct $500 for it.
In the end, it is up to you to do your math and identify the option that works for you. Should you encounter any difficulties, remember that you can always turn to me for help.
If you need help calculating and filing your taxes, send an email to email@example.com and inquire about our CPA services! If I cover your area of expertise, you’ll benefit from a 30 minutes free consultation!
20. Other Deductions
Besides the above-mentioned expense categories, you may also be able to deduct:
- Health insurance premiums (if you are not eligible for enrollment in an employee plan or inclusion in your spouse’s plan)
- Educational expenses (the courses and training you follow have to be related to your trade)
- Self-employment tax (you can deduct the portion of the taxes an employer would pay for you, namely half of your Social Security and Medicare cost)
Drawing the Line on Tax Deductions for Freelancers
Now you know what type of expenses you can deduct to avoid paying more than you need to on taxes.
You probably have your worries about including all these deductions in your tax form, and we’d like to chase some of those worries away.
These deductions are a way to stimulate investments that could improve the economy. The government basically encourages you to spend money in order to conduct your activity in better conditions, expand, bring employees onboard, or improve your service offer.
Of course, in order to deduct your expenses, you need to keep track of them. If you fail to track and claim deductions, you lose money.
Because some freelancers and business owners have tried to deduct expenses they did not really incur, the IRS reserves the right to verify some expenses through audits.
However, this should not prevent you from claiming your deductions. The IRS is not after small businesses and freelancers.
In order to draw their attention, you would have to report expenses higher than your earnings and claim really big returns.
Moreover, if you document and track your expenses, you have nothing to worry about. Keep your documents in order, and the IRS will see you did nothing wrong.
And don’t neglect to deduct small expenses. They tend to add up and save you a small fortune in the long run.
What type of expenses do you usually deduct? Do you know of any tax deductions for freelancers we haven’t covered? Don’t hesitate to share your thoughts and experience in a comment below!
Logan is a practicing CPA, Certified Student Loan Professional, and founder of Money Done Right, which he launched in July 2017. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.