Editor's Note: As part of recently passed COVID-19 relief measures, the tax deadline has been moved from April 15 to July 15. This has helped me breathe a sigh of relief—and maybe the same is true for many of you. But in order to support you getting your taxes done correctly, and in a timely manner (which could really help those who anticipate a refund right now), we’ll be bringing you Tax Tuesday, a series which provides tax-filing resources and advice to people who work for themselves. This is the last in the series, but check out “How to File Taxes When You’re a Freelancer” and “A Freelancer’s Guide to Tax Forms” for more!
What are tax deductions anyway?
Like the old adage says: it takes money to make money. If you meet a client for lunch, someone’s got to pay for it. Advertising your services in a local publication? That’s not free. Taking a class to help you better your graphic design skills? You’ll have to open your wallet to enroll. The IRS takes all of that into account, and lets you subtract the cost of all those business expenses from your overall income before they tax you on it. (And in case you didn’t realize: the expenses you deduct as a freelancer are separate from other deductions, including the standard deduction.)
The IRS’s basic rule for business deductions is that “to be deductible, a business expense must be both ordinary and necessary.” What exactly that means will depend on your business. A model might be able to write off a haircut or bikini wax, but the government might have questions if a self-employed carpenter did.
Figuring out exactly what qualifies as a business expense in your field will take some self-reflection (any maybe some tax code research), but, to help you get started, here are some common deductions that every freelancer should know.
Location Location Location: Tax deductions for where you work
Can I write off my workspace?
Whether you own or rent your home, if you’ve got a dedicated home-office or studio space, you can write it off on your taxes. The IRS is strict about this though—the space has to be the main place where you do business, and you can’t use it for anything other than business. Exactly how much you can deduct is generally based on how much of your home your office takes up (so if you’re choosing between two spare rooms to set up your home office, you might want to go with the bigger one). And a protip: you might be able to claim maintenance costs like pest control or cleaning services.
Can I write off my office supplies?
You don’t have to claim the home-office space deduction to claim the cost of your office supplies. Paper, printer cartridges, and sticky notes all qualify (so long as they’re only used for work purposes; maybe get a separate note pad to write your grocery lists). The cost of office furniture like chairs, desks, shelving, or filing cabinets can be deducted too, even if it isn’t in a dedicated office space.
What about my car usage—is that eligible for a deduction?
Gas ain’t free. Whether you’re zipping across town to meet with clients, going to the store to buy materials, or bringing your products to the post office to mail them to far-away customers, those business-related miles add up. The IRS lets you deduct those costs, based on a standard mileage rate (for 2019, it’s 58 cents a mile). Be careful, though. If you use your car for business and pleasure, you can only claim the work-related trips.
And gas isn’t the only automobile-associated cost you might be able to write-off. You might be able to deduct interest on your car loans or factor in the depreciation of your vehicle.
If you’re making longer work-related trips, you might consider avoiding wear-and-tear on your own vehicle and rent a car instead. Generally speaking, any work-related travel expenses (rental cars, flights, hotel rooms) are deductible. But if you mix business and pleasure, be sure to document and claim only the work-related parts of your trip.
Grown Folks Only: Deductions for successfully adulting
Can I write off my retirement plan contributions?
Freelancers still have to pay Social Security and Medicaid taxes, but they should be thinking long-term, and putting something aside for the future. Retirement plans are one of the best tax deductions for the self-employed and freelancers, because it’s basically the government funding your IRA.
What about my health insurance?
You might be able to deduct what you paid for health or dental insurance for yourself, your spouse, or your dependents.
And health insurance isn’t the only kind of insurance you can get a deduction for. If you pay for liability insurance, malpractice insurance, or theft insurance, you can claim that on your taxes too.
Can I deduct my student loan interest?
Tax season might be the only time of year when student loan debt can work in your favor. You might be able to deduct any interest you’ve paid on those loans from your taxable income. In fact, Americans have deducted more than $165 billion dollars, with an average deduction of just over $1,000 dollars.
And there’s more good news. You don’t have to be the one who paid your loan interest to claim this deduction. In fact, you might want to consider putting student loan payments on your birthday list or wedding registry; just tell your friends and family that they’re investing in your business!
Money Matters: Deductions for the cost of doing business
Can I deduct my state taxes?
You don’t only owe taxes to the federal government; unless you live in one of the handful of states with no income tax, you’ve got to pay up at the state level too. If you paid state taxes last year, you can claim up to $10,000 dollars of that money on this year’s federal income tax return.
You can also deduct your Federal Unemployment Tax. And if you’re in a field that requires a license--like make-up artists or plumbers--you can also deduct the cost of those.
What about depreciation of property and equipment?
Have you purchased a computer or printer to use exclusively for work? What about a camera or tripod? Tools for carpentry or glassblowing? So long as you expect to use any of that equipment for more than a year and you can estimate how long you’ll be able to use it, you can deduct its depreciation (you might be able to deduct costs of repairs or upkeep as well).
Can I write off transaction fees, like those from PayPal?
More and more, freelancers get paid through services like PayPal, Venmo, Ca$hApp. If a third party charges you to get your money, you can claim the transaction fee on your taxes. (If you use those services for business and personal transactions, you might consider making separate accounts to keep it all straight).
Can I write off unpaid invoices?
It’s never a good thing when a client skips out on a bill. But you can recoup some of those costs; so long as you claim those invoices as income, you can write them off as bad debt.
Are educational expenses eligible for deduction?
Taking classes or buying research material to be more effective in your work qualify for deductions, as do subscriptions to trade publications or dues in business organizations. Work-related webinars and e-books count too, so don’t forget to save your e-receipts.
Branding Bonuses: Deductions for advertising and promo
How can I deduct my internet costs?
For many freelancers, a website is an absolute necessity. Luckily, domain costs and web hosting services are deductible; they count as “Other Expense” on your 1040. This isn’t likely to be your most lucrative deduction (most domains only cost $120-$140 a year), but every little bit counts.
You might also be able to deduct the cost of your internet service (and phone bill). Technically speaking, you can only claim the time you’re using your internet for work; all the more reason to keep track of your working hours.
Also eligible for deductions: the cost of any apps and online services you use for work. If services like Hootsuite, Dropbox, or Buzzsumo are integral to your business, you can claim the cost of your subscriptions. This goes for business software subscriptions like Office 365 and Adobe Suite, too.
How can I write off business meals?
This deduction is most useful for freelance writers and consultants, as networking, interviewing, and pitching to potential clients often happens over lunch or dinner. Be careful though; it can be difficult to prove your meals were for business, and you’ll want to have good documentation in case you ever get audited. Protip: pay for business meals from a dedicated business credit or debit card, and keep the name and company of anyone you dined with on your receipt.
Can I write off or deduct my business advertising costs?
How do you let customers know about your business or services? The cost of everything from sponsored ads on social media to fliers plastered at local coffee shops can qualify for a tax deduction. Of course, this isn’t a fixed cost, so you’ll need to maintain good records and keep track of all of your individual advertising costs, even though it’ll all get lumped in as a single sum in the advertising deduction line on your 1040.
Assorted Auditables: Other useful deductions
Can I write off or deduct contract labor?
Successful freelancing involves a lot of multitasking, but you can’t always do it all. If you’ve hired other independent contractors or freelancers to help you with your work--maybe a graphic designer to spruce up your website, or a photographer to capture images for your brochure--you can claim those costs as a deduction.
Can I write off social security and medicare tax payments?
Social Security and Medicare are taxed at around 15.3%. Usually, this cost is split evenly with an employer, but as a freelancer, you can deduct the employer’s share and write off half of what you pay.
Can I write off what I pay for tax preparation services?
If you use a CPA or an accountant to prepare your taxes for you (highly recommended), the cost of those services can also be deducted.