One of the most unappealing parts of being a freelancer is dealing with taxes and tax deductions. You are responsible for paying estimated taxes and for finding savings where you can. Here are some deductions that are available to freelancers:
1. Business Use of Home
If you work from home as a freelancer, you can deduct expenses for your home office. According to the Internal Revenue Service (IRS), you must "regularly and exclusively" use a part of your home for one of the following: "The principal place of business for your trade or business; the place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business; or in connection with your trade or business, if you use a separate structure that is not attached to your home." You may also deduct expenses for business storage.
2. Business Use of Car
Even if you work from home, you need to network locally, and in some cases nationally to grow your business. You can deduct expenses for using your car if you attend business meetings, conduct research at the library or elsewhere, travel to conferences, send queries at the post office, or meet prospective clients at their place of business. Keep a travel log and record any car trips you have to make for business.
3. Health Insurance
If you purchased private health insurance, you can deduct the expense. Perhaps you bought health insurance through your local chamber of commerce or through a Christian charity. Add up all of your monthly payments, plus any sign up fees, and include it in your itemized tax deductions.
4. Educational Expenses
You can deduct work-related educational expenses. As a freelancer, you might decide to get certified to better serve your niche. You might enroll in a weekend course or go to college to improve your skills in a given area. These expenses may qualify for tax deductions, so hold on to your receipts.
You cannot deduct the expense if the education is for the purpose of starting a new freelance business. You must show that the education is to help you maintain or improve your performance.
5. Business Entertainment Expenses
At some point you'll spend money on coffee, lunches, and other entertainment expenses to build relationships with clients and other freelancers and business owners. You can deduct these expenses for your business in this category. The IRS states, "Generally, only 50% of food and beverage ("meal") and entertainment expenses are allowed as a deduction." As with any of the tax deductions mentioned, you have to keep records of the purpose, date, and money spent.
You can deduct the non-business related taxes you paid during the tax year for which you're filing. These include state income taxes, real estate taxes, personal property taxes, and state and local sales taxes. You can also deduct any estimated taxes you've paid in these categories.
There are additional miscellaneous tax deductions that are subject a 2% limit. Your tax software or tax preparer can help you determine whether your expenses are tax deductible.
Daphne Mallory, Esq. is the co-owner of Mallory Writing Services and has written more than 100 articles helping home based business owners and entrepreneurs start and market their business. You can learn more about her here.