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Tax deductions for freelancers: 12 deductions to save money this year

While there might be a few reasons to envy the freelancer lifestyle, the increased tax preparation burden isn’t one of them. But learning how to save money during tax season can relieve some of that stress.

While tax rules for freelancers are somewhat complex, you can still write off expenses for operating your freelance business. In this guide, you’ll learn about 12 tax deductions for freelancers and how to claim them so you’re ready for the next tax season.

  1. Travel and hotel
  2. Home office
  3. Utilities
  4. Professional development
  5. Advertising and marketing
  6. Website
  7. Software
  8. Vehicle
  9. Unpaid invoices
  10. Incorporation
  11. Health insurance
  12. Legal fees
A list of of 12 possible tax deductions for freelancers.

1. Travel and hotel

Amount: 100%

If you travel to visit clients or attend trade shows, you may be able to deduct these expenses. Business travel expenses can include transportation and accommodation costs, and the IRS allows a 50% deduction for business meal expenses. 

To claim this deduction, the primary purpose for the trip needs to be for business, and the expenses should relate to your business. Keep records of plane tickets, rental car receipts, and any other documentation showing your expenses. 

It’s important to note that you shouldn’t attempt to write off any expenses associated with sightseeing and leisure travel, which can trigger an audit.

2. Home office

Amount: Depends on the method

Many freelancers work out of their homes in the early days, especially when their businesses are first getting off the ground. As a result, the IRS allows self-employed persons to deduct a portion of their mortgage or rent going to a home office.

To qualify for the home office tax deduction, you must have a specific area in your home designated for working, and you must refrain from using it for other purposes. 

When claiming this deduction, you can calculate the deduction’s value using the regular or simplified home office deduction option: 

  • Simplified method: Deduct $5 per square foot of your home office space for up to $1,500 deduction. 
  • Standard method: Calculate the square footage of your home office, divide by the square footage of your home, and multiply by all your home expenses. 

The standard method is more complicated than the simplified method since you have to keep track of all your home expenses. However, you can deduct an unlimited amount using the standard method, while with the simplified method, you can only deduct up to $1,500. 

3. Utilities

Amount: Percentage of house used for office

While business owners with offices outside their homes can deduct 100% of their utilities, freelancers who work at home can still write off a portion of this cost. To determine how much of your utility costs are tax-deductible, calculate the percentage of your home occupied by the office.

Along with gas and electricity, freelancers can deduct the costs of heating, air conditioning, and phone service. Be aware, however, that you can’t deduct the cost of utilities if you claim the simplified home office deduction.

4. Professional development

Amount: 100%

As a freelancer, it’s important that you find ways to stand out from your competitors in the industry. To keep ahead of the pack, many freelancers attend business courses and educational seminars.

Understanding that these expenses can add up, the IRS allows freelancers to deduct expenses related to professional development on their tax returns, such as classes, workshops, and seminars. Additionally, self-employed persons can write off dues for professional organizations and membership fees.

To qualify for this freelance tax deduction, the costs must add value to your work and improve any necessary skills.

5. Advertising and marketing

Amount: 100%

In our increasingly connected society, self-employed people have to engage in marketing and advertising to stay competitive. The IRS permits freelancers to write off the cost of flyers, web advertising, business cards, and print ads, among other marketing expenses.

To claim this deduction, keep receipts, invoices, and any documentation to verify the advertising costs.

6. Website

Amount: 100%

With most consumers using the internet to research purchases, creating a mobile-friendly, responsive website is crucial for a freelancer’s success. Luckily, self-employed persons can deduct costs related to their business websites, including domain fees, design, building costs, and maintenance.

7. Software

Amount: 100%

These days, most freelancers spend their days staring at computer screens. From sophisticated video editing programs to basic options, software can be expensive, making it a useful deduction for freelancers and small business owners.

The software you want to deduct as part of your freelancer expenses has to be readily available for purchase with a nonexclusive, unmodified license.

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8. Vehicle

Amount: 100% or percent of vehicle usage

Do you regularly drive to meet clients or suppliers? If so, you should take advantage of the tax deductions available for costs related to vehicle mileage or normal vehicle wear and tear. 

You can choose between two vehicle-related deductions: the standard mileage option or the actual expense option:

  • Standard mileage rate: Track your mileage used for business and multiply by the IRS standard mileage rate. 
  • Actual expenses: Track all vehicle-related expenses and multiply them by the percentage of business-related miles. 

The standard mileage option allows you to make a deduction based on how many miles you’ve used for business purposes. The actual expense option allows you to figure out the total cost of maintaining your car versus the actual cost of maintenance for business use.

9. Unpaid invoices

Amount: 100%

It’s no secret that clients are sometimes late in paying their invoices, but some never pay at all. Fortunately, the IRS allows self-employed persons to deduct unpaid invoices as a loss for their businesses. Keeping a detailed list of unpaid invoices along with each invoice number will help you properly take the deduction.

Note that this deduction is only available if you keep your books on the accrual method of accounting. Under the accrual method, income is taxable when you send out the invoice. Conversely, if you use the cash basis accounting method, income is only taxable when you receive the payment.

10. Incorporation

Amount: Up to $5,000

If your freelance business is successful, you may consider incorporating in the near future. The IRS allows new businesses to deduct expenditures associated with incorporation, including state fees and legal costs during the business’s first year of operation.

11. Health insurance

Amount: 100%

As a freelancer, you don’t get the benefit of employer health insurance, which leads to a hefty expense. Luckily, you can also deduct self employed health insurance premiums if you pay for your own premium and aren’t eligible to join your spouse's employer plan. 

You can also deduct the health insurance premium for your spouse, dependents, and children under 27 years old, even if they aren’t dependents on your tax return.

12. Legal fees

Amount: 100%

If you hire a lawyer to help with a legal matter or a tax advisor to help prepare your tax returns, you can deduct the legal fees. The legal fees you deduct must relate to your work and must be a necessary expense for running your freelance business. 

Legal fees you can deduct include: 

  • Fees related to resolving tax issues
  • Tax advice or preparation services
  • Discrimination claims

However, you may not deduct legal fees that are unrelated to your work, such as for a hobby or personal matter.

How to claim tax deductions as a freelancer

Most freelancers will file taxes as a sole proprietorship. This means that if you want to claim freelance tax deductions, you can do it on your personal income tax return. 

You’ll have to file a Schedule C with Form 1040 to claim your deductions. Keep in mind that some tax deductions aren’t included as part of Schedule C, and you may have to file them under other sections of your tax return or a different schedule. 

Hiring a tax adviser or an accountant to help you file your taxes will ensure that you fill your tax return correctly and take advantage of all tax deductions you can claim as a freelancer. 

Tips for maximizing freelance tax deductions

If you want to take advantage of these tax deductions for freelancers and save money to invest back into your work, here are some tips for maximizing your freelance tax deductions:

A list of tips on how to maximize freelance tax deductions.
  • Keep detailed records: Maintain accurate and organized records of all income and expenses related to your freelance work, including receipts, invoices, and bank statements
  • Stay informed on tax laws: Learn about tax regulations in your area and type of business, as some deduction limits and eligibility requirements may change. 
  • Establish a dedicated workspace: Have a specific area in your home for work purposes and exclusively for your business to claim a home office tax deduction. 
  • Keep track of your miles: If you have a vehicle for business purposes, like meetings and client visits, track the miles and expenses to deduct them later. 
  • Document travel expenses: If you’re planning a business trip, remember to document all expenses and keep records, including transportation, accommodation, and meals. 
  • Review and update regularly: Review your expenses often to ensure you’re maximizing your deductions based on your freelance work. 

Lastly, seek guidance from a tax professional or accountant familiar with freelance taxes, as they can provide personalized advice and ensure compliance. 

Find peace of mind come tax time

Filing taxes as a freelancer for the first time can be stressful, but it’s also a way to save money. By taking advantage of all possible tax deductions for freelancers and understanding what’s expected of you, you can minimize your tax burden and give your business the chance it needs to grow.

On top of that, software like QuickBooks Self-Employed can help calculate expenses for you, simplify the entire tax filing process, and ensure you claim the deductions you deserve.

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