Freelancer’s Guide to Important Tax Deductions

April 15th is almost upon us and that means that it’s tax time. For myself and many of the other freelance workers that I know, this time of year is truly dreaded. Most of us didn’t quite keep track of our expenses as well as we should have throughout the year. Many of us didn’t pay in to our quarterly taxes properly so we expect to owe money. And since we tend to be wordy people, we don’t necessarily like dealing with all of the numbers and math that are involved in doing our taxes.

Despite all of the dragging of our heels that us freelancers may do, that April 15th date is going to creep up on us. We’re going to need to get those taxes done sooner or later. If you’re a freelance worker, at-home employee or independent contractor then take a look at the following important tax deductions that you want to make note of as you sit down to tackle the task of doing your taxes.

Freelance Tax Deductions Related to Your Home Office

Freelance employees who work from home should know that there are a lot of tax deductions that you can take based on the fact that your office is in your home. Expenses for the portion of the home that is used for the office can be partially deducted on your income taxes. Things to consider in this area of freelance taxes include:

• Rent or Mortgage. You can deduct a portion of the rent or mortgage of your home in direct proportion to the amount of space that you use for work in your home. Calculate how much “office space” you have (including any storage space for office supplies) and figure out which percentage of your rent or mortgage you can count for that. So let’s say that you use one room out of five (or twenty percent) of your home for your office space and your rent is $1000 per month; twenty percent of that (or $200 per month) may be deductible.
• Home Bills that Apply to the Office. The same percentage of your office space that is used to figure out your tax-deductible rent or mortgage can be applied to any of the bills in your home that also apply to your office. This means that the utility bills and phone bills can be partially deducted on your income taxes.
• Home repairs that directly benefit your business. If you were lucky enough to get the chance to upgrade your home office in the past year then you can probably deduct at least a portion of those expenses on this year’s income taxes.

Freelance Tax Deductions for Travel Related to Your Business

There are many different kinds of travel that we do for our freelance businesses. Some of this travel may be partially deductible on our income taxes. Consider the following freelance tax deductions for transportation and travel:

• Travel for research. If you have to travel to a different location in order to do research for a writing project then your travel expenses (including hotel bills, etc.) should be fully deductible on your income taxes.
• Transportation within the city for purposes of work. If you travel within your area for interviews and meetings associated with your freelance work then you should figure out your mileage and transportation costs and deduct them accordingly when doing your freelance income taxes.

Freelance Tax Deductions for Expenses Specific to Your Business

Don’t forget all of those things that you purchase for use in your business that you can deduct on your taxes. Some examples would be:

• Computer equipment and supplies including paper and ink.
• Services that you purchase for your business including accounting and legal help as well as subcontracting services.
• Marketing materials. Any brochures or business cards that you bought can be deducted as a freelance business expense.
• Website costs. Don’t forget to consider the cost of your website and maintaining your domain.
• Cost of materials used in creating products for your business. If you have any kind of at-home business that requires materials (scrapbook supplies for a scrapbooking business, for example) then you can deduct the cost of those materials.

Freelance Tax Deductions Related to the Finances of a Freelancer

There are some financial things that freelancers deal with that other people who do traditional taxes may not know about. Freelancers can deduct some of these things on their taxes including:

• Banking fees. Many of us use PayPal which takes fees out of each check. You don’t get that money so you get to count it on your taxes.
• Payments not received. An unfortunate truth of being a freelancer is that sometimes you don’t get paid. Make sure that you’re not including any unreceived payments in your total income when you do this year’s taxes.
• Health insurance fees. Many freelancers have to purchase their own health insurance. You can deduct that cost on your income taxes.
• Additional insurance fees. A percentage of your other types of insurance (home insurance, auto insurance) may be deductible as a business expense to the extent that those items are used in your work.
• Retirement plan deductions. Like with health care, retirement plans are something that you have to deal with yourself as a freelancer rather than getting it taken care of by a boss. That means you get to take a deduction here.
• Business loan deductions. If you took out a loan to grow your business then you may be able to deduct some things related to that loan.

Keep in mind that there are detailed rules for all of these freelance tax deductions. Make sure that you work with someone who understands tax rules to get all of the deductions that you possibly can without breaking those rules.