25 Tax Deductions You Can Claim as a Freelancer
While tax season can add stress to your already busy schedule, it's not all doom and gloom.
Just because freelancers have flexibility and independence doesn’t mean that we don’t get stressed out. Even though we have the option to work from home and set our own hours doesn’t mean that we can slack off. We still have deadlines to meet, clients to network with and invoices to send. On top of that, we’re also responsible for filing our own taxes.
While tax season can add stress to our already busy schedules, it’s not all doom and gloom. If you stay organized and are prepared in advance, this time of year can go by smoothly. And, you may even be able to reduce your taxable income by knowing which expenses you can deduct.
Before we jump into this list of 25 tax deductions that you can claim as a freelancer, here are a couple of very important tips.
The first is that you should still hire an accountant or trained tax professional. They’re the experts and they’ll inform you on what you can deduct and what you can not. They may even find some additional deductions that you never thought of.
The other pointer is that most deductions will be filed using Form 1040, Schedule C. (Keep that in mind as you continue reading because we’ll be discussing where to include that deduction on your form.)
1. Office space
Whether you own or rent, office space is probably the biggest deduction that you’ll claim as a freelancer (even if you work from home). This can be deducted by filling out Line 30 of Form 1040, Schedule C. In the past this was a complicated process, but the IRS simplified this deduction in 2010. According to the IRS, you can claim “$5 a square foot for up to 300 square feet.”
Keep in mind, though, that you don’t want to include Lines 16, 25 and 27 as well. These expenses all go in Line 30.
2. Office supplies
You can deduct all of your office materials like pens, paper, books and printer cartridges in Line 18. Keep this in mind when purchasing office supplies since you’ll want to keep all of your receipts.
3. Hardware and software
What if you use your personal laptop, computer, smartphone or tablet for work too? You may be able to deduct those gadgets -- along with other electronics that are relevant to your business like a camera. Even services like Netflix and other software can be deducted as long as you prove they are needed in your business.
As a rule of thumb, don’t try to fool the IRS. But, if you keep a written log that details your use of hardware and software for work, you claim the business percentage. Before doing this, you should double-check with your CPA.
4. Health insurance
As the IRS states, “If you are self-employed, the IRS wants you to know about a tax deduction generally available to people who are self-employed.” This deduction would be for any medical, dental or long-term care insurance premiums that you’ve paid. This is only possible if you had a net profit from self-employment. In most cases you’ll be able to claim this deduction on Line 1 of Schedule A form 1040.
5. Insurance premiums
Speaking of insurance, freelancers can also claim insurance premiums like liability insurance, workers’ compensation insurance, malpractice insurance or insurance that covers you from fire, flood, storm or theft.
6. Travel expenses
If you’ve had to travel for business, such as attending an industry event or meeting with a client, you may be eligible to deduct items like flights, hotel rooms, car rentals and even dry cleaning. If you plan a vacation around your business trip you can only claim the portions of the trip that were business-related.
This information would be filled out in Line 24A.
If you purchased ads, business cards, brochures, sponsorships or any other swag that has your business name on it, you can deduct these advertising expenses on Line 8. Online advertising can also be deducted.
8. Membership dues
If you belong to an organization that assists with your freelance career and you’re required to pay membership fees, these fees can be deducted.
9. Internet and phone bills
Even if you use your internet or cell phone plans for both personal and professional use, you can still deduct a percentage of these expenses on your taxes.
10. Legal and professional services
Have you visited a lawyer or hired an accountant this year? You can deduct the cost of these services in Line 17. And, even the individual who helped prepare your taxes can be included as well.
If you’ve taken out a loan to help expand your business, you can claim that on Line 16. Credit and debit cards can also be added. But, to make organization easier, you should have a personal credit card and another one strictly for business.
12. Transaction fees
Do you get paid through PayPal or another third party that takes out a transaction fee? You can add those fees together and include them on Line 27A. If you sell products on sites like Etsy, you can also add that here.
The IRS describes this as “an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration or obsolescence of the property.” This can be an important deduction for freelancers who make a living using expensive equipment like laptops and cameras.
14. Contract labor
If you hired any other independent contractors or freelancers, like a web designer for your site, a graphic designer for your business cards or a content writer for your blog, then you can include these costs on Line 11.
15. Self employment tax
If you’re still filing a Form 1040 Schedule C, then you can deduct half the cost of Social Security and Medicare taxes. If you’re freelancing career is fairly established, then you may want to consider forming an LLC -- an LLC could lower the amount of self-employment taxes that you’re eligible for.
16. Retirement plan
As a self-employed individual, the best option in regards to a retirement plan is a SEP IRA. This plan was designed specifically for self-employed individuals and small business owners, where they can contribute up to $53,000 annually. Best of all, every dollar you contribute is deductible.
17. Professional development and educational expenses
If you attended a conference, enrolled in a class or participated in a webinar in order to develop your professional skills the IRS clearly states, “If you are self-employed, you must report the cost of your qualifying work-related education on the appropriate form used to report your business income and expenses (generally, Schedule C (Form 1040), Schedule C-EZ (Form 1040) or Schedule F (Form 1040)).”
18. Research materials
Let’s say that you’re a freelance writer and you’ve just written a book that details the history of frozen pizza. The frozen pizza that you’ve consumed for research purposes can be deducted. Those interviews you conducted with historians and culinary experts and recorded with tools like Call Recorder for Skype are also deductible.
19. Car and truck expenses
If you rely on a vehicle for your business then you have the ability to claim expenses like fuel and maintence. There are two basic ways to approach this deduction. The first is to stick with Form 1040, Schedule C and multiply the miles you drove this year by 56.5 cents. The other option is to complete Form 4562, Section B where you can itemize gas and include expenses like insurance, depreciation and repairs.
20. Unpaid invoices
This can get a bit tricky, but you do have the opportunity to write off any unpaid invoices from the last year as bad debt. This would go on Line 6 of Form 1040, Schedule C. The catch is that for you to deduct unpaid invoices, you would have to have claimed this as income.
21. Taxes and licenses
The IRS allows you to deduct the following taxes:
- Real estate only on the property of your business. If you work out of your house then you can only deduct a percentage.
- Federal unemployment tax.
- State and local taxes. You should have collected these in Line 1 and from the buyer.
Not all freelancers have to consider licenses, but if you’re in a field that requires you to have an occupational title, such as a lawyer, plumber or investor, then this can be claimed.
22. Repairs and maintenance
If your computer, camera or printer broke and you have to repair it, then this would be included on Line 21.
Deducting the costs of business related meals is a pretty common occurrence. However, the IRS has strict and complex guidelines regarding the deduction of meals. If you were to take your client to a business lunch at your favorite neighborhood restaurant, then you could probably write that expense off. If you took a client on a weekend adventure to Vegas, then you probably won’t get as lucky.
24. Online presence
Some of these expenses may get placed with advertising deductions, but this is a really sweet deduction, it's too good not to mention. If you’re paying a web host for your blog/website or have purchased tools like MailChimp, HootSuite or LinkedIn to maintain an online presence then you can deduct these costs on your taxes.
This only applies to freelancers who are selling products, like clothing, jewelry or handmade goods. This does not include your inventory. Instead, it’s what you spent on items to make your products.
(By Angela Ruth)
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