If you’re freelancing, the tax waters can be a little murkier than if you’re running a bigger business: you might work from home, use items for both business and personal purposes, and drive your car for business reasons. How can you reduce your tax burden and be sure you’re within the law?
Here are 10 tax deductions you can take advantage of, with a few guidelines on each. Keep in mind that these are general guidelines, and you may want to consult a professional for your individual situation.
- Home Office — If you’ve dedicated a room in your home for business use, you can deduct it, using either the new, simplified calculation (writing off $5 per square foot of space up to 300 square feet, for a max of $1,500) orthe traditional, more complex calculation. You have to use the space exclusively for business, however.
- Office Supplies & Equipment — You can deduct basic office supplies like paper, pens, files, and calculators, as well as larger items like computers, software, printers, and other equipment. Larger items can be depreciated, allowing you to spread out the deduction over the lifetime of the item. If you use any of these items for personal reasons as well as business (including phones and internet service), you’re in a gray area, and you may want to check out the IRS’s extensive guidelines.
- Travel & Meals — If you’re headed anywhere on business other than your office, you can deduct travel costs such as fuel, plane tickets, cab fares, and hotel stays. You can also deduct 50% of business-related meal and entertainment expenses, like taking a client out for coffee. This doesn’t include a week-long vacation to Hawaii, however.
- Professional Development — Taking classes for professional development, including seminars and courses, is deductible. Dues for memberships in professional organizations is also.
- Contractor Fees — If you work with other freelancers and hire them to do specialized work for you, you can write off the fees you pay them. This includes the cost of tax-preparation services!
- Bank fees — Bank fees on your business accounts are deductible.
- Health Insurance Premiums — You can deduct health insurance premiums, and you’ll want to make sure you have health insurance to avoid penalties.
- Uniforms — If your work clothing is a uniform, you can deduct it. Regular clothing isn’t deductible, even if you use them only for work.
- Advertising — Advertising expenses, such as taking out an ad in a local magazine or paying for Google AdWords, are deductible.
- Equipment Repair — If your computer or other work equipment breaks, you can deduct the cost of fixing it.
Because freelancers are targeted for audits more frequently than taxpayers filing W-2s, it’s recommended to keep all your receipts for six years. Also note that credit card statements aren’t enough—the IRS wants to see exactly what you spent the money on, not just where you spent it.
If you have questions about the deductibility of specific items, feel free to give me a call at (864) 836-3136, and we can set up a time to talk.