10 Deductions Freelancers Should Know About [US]
*This article was written by Intuit. This information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different. The information provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.**This information is based on United States taxes. Freelancing comes with a lot of benefits, like setting your own rates and working on your own schedule. But as a freelancer, you’re also responsible for estimating and paying your own taxes, which can be complicated. Underestimate your taxes and you could get hit with a big bill come tax time—or worse, an expensive audit. Overestimate and you could be pouring more of your monthly income into tax payments than you need to.
Plus, if you think you’ll owe more than $1,000 in annual taxes, you’ll need to pay taxes throughout the year. Quarterly tax payments are intended to ease the burden of a huge tax bill at the end of each year, and there are penalties for forgetting to pay quarterly.
But here’s another benefit for freelancers: you can deduct business expenses from your income to reduce your tax liability. Tax deductions are IRS-qualifying expenses that you can subtract from your taxable income. These deductions reduce the amount of your income subject to federal and state taxation—in other words, deductions can help you keep more of your hard-earned money in your pocket. All you need to do is keep accurate records of your business expenses throughout the year—which you’re already doing, right? (An expense tracking software like QuickBooks makes it easy!)
So, which business expenses are deductible? According to the IRS, business expenses must be ordinary and necessary to be deductible. “An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business.” There’s certainly some gray area there, so let’s take a look at the some common deductions that freelancers can take advantage of.
1. Taking clients and colleagues out for lunch and coffee
After the 2018 tax reform, business entertainment expenses, amusement, and recreation are no longer deductible. However, business-related meals, such as treating clients to lunch and meals purchased on business trips, are still deductible at 50% of their total cost. So, you can’t deduct your daily coffee run but you may be able to deduct 50% of meeting a client for coffee.
2. Computers, phones, and other equipment
Because technology is so necessary to how most people make a living today, the 2018 tax law lifted the onerous documentation requirements on computers, smartphones, and related accessories. You still need to allocate personal and business use if you don't have separate devices but don’t need to extensively document it.
3. Business travel expenses and mileage
Going to conferences and being on location for multiple gigs can add up. Fortunately, you have a sizable deduction at your disposal. Work-related flights, cabs, rideshare, and lodging are all deductible. Even if you use your own car, you can deduct the IRS-determined rate per mile or the actual costs of maintaining your car, whichever is more beneficial.
4. Credit card interest (if you financed eligible business expenses this way)
You can't deduct your personal credit card interest. But if you have a separate credit card for business expenses, or if you calculate how much of your balance is attributable to business expenses, you may be able to write off the finance charges.
5. The cost of coworking space
Coworking space is a valuable way to build a creative network and create a work-life separation. Whether you're getting consistent passes or renting a private office, you can deduct the rent you pay.
6. Your home office
If you choose to work at home, there are specific requirements you need to meet in order to deduct a portion of your rent and utilities. Namely, your home office space needs to be exclusive and regular—which means you exclusively use the space for work and regularly use it. Buying a coworking weekly pass won't affect the deduction, but a long-term agreement could nullify it.
7. Subscriptions, books, and other professional research
Magazines, books, virtual courses, and other resources you use for source material or to help your professional development may be deductible research expenses that are frequently overlooked.
8. Investing in your career with workshops and further education
Self-employed professionals are empowered to take advantage of tax benefits for education. Whether you're attending a small workshop or going back to an accredited university for a course or certificate, education is an investment that may equate to a deduction.
9. Attorneys, accountants, and other professional fees
Professionals like lawyers, accountants, and business consultants help keep your business operations running smoothly so you can focus on providing excellent service to your clients. Whether you need burning questions answered or help going after unpaid invoices, the professional fees you pay throughout the year may be deductible.
10. Promoting yourself
Every entrepreneur needs to market themselves. Business cards, swag, social media ads, and even event marketing are all deductible. The cost of launching, designing, and upkeeping your website may also be tax-deductible.
With tax laws constantly changing, it's important to stay on top of which deductions you're eligible for each year. A tax professional can help, but you can make it easier on yourself (and them) by keeping accurate expense records, keeping business and personal expenses separate, and getting a head start on your taxes. QuickBooks Self-Employed can simplify your tax recordkeeping with a suite of tools, including mileage tracking, invoicing, and expense management. Come tax time, QuickBooks can help you estimate your taxes and uncover deductible business expenses—so you can maximize your income.
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