Taxes. Love them or hate them, tax season has arrived. Navigating through taxes as a self-employed person can get murky, but nonetheless, we must move forth. As a freelancer or creative solopreneur, we already have so many hats to wear — marketing director, human resource specialist, receptionist, accountant, not to mention your actual trade — that when it comes time for the annual tax review and filing, it can be quite daunting (and frustrating, complicated and confusing).
You’ve paid your estimated quarterly taxes, check. Now it’s time for the big leagues and April 20 will be here before you know it. It’s best to be prepared to tackle tax season head-on to, let’s be honest, CYA and to take advantage of all the self-employed tax perks, exemptions and business write-offs available.
But where to start is the question, and what tax deductions to take is the even bigger — and dare I say more important — question. Working as a full-time freelancer does not come without its challenges, and for me that means understanding taxes and taking full advantage of all deductions available to sole proprietors.
So without further ado, here are 10 qualified tax deductions to consider as you power through tax season … and to ensure you get ultimate tax ROI as the hard-working, self-employed freelancer that you are.
If you’re anything like me, you may meet up with clients or coworkers to talk about projects or business plans at your favorite local coffee shop (I’m talking about you, Temple Coffee Roasters in Sacramento and Argos Caffe in Folsom). Remember to keep any and all receipts because you can write off half of that freshly-brewed Americano you just purchased. Trust me, it adds up quick.
Home Office Expenses
Working out of your home office? Any payments toward insurance, mortgage, electricity, utilities and more can all be deductible. Keep track of all home expenses throughout the year for easier tax filing come April.
Related: How to Pay Estimated Quarterly Taxes
Secondary phones are a deductible expense; and by secondary, I mean not your landline phone in your home (if you still even have one). Checking email, making phone calls, even posting business- or client-related social media posts through your phone can qualify it as a business expense.
Research and Education
Buying books, attending conferences, taking educational classes and other research-related expenses are deductible, as long as it’s specific to your industry or business.
Part of the job of a freelancer is to work through a pipeline of new business. We’re always hustling away for the next gig, the next client or the next project. Any costs associated with looking for new work — job boards and other memberships — are all write-offs.
Seeking out help from professionals, like lawyers or accountants, is not only beneficial to your freelance business, but it also qualifies as a tax deduction of related fees. (Even more of a reason to commit to the investment, if you ask me.)
Hiring a Fellow Freelancer
Sometimes work as a freelancer means bringing onboard another freelancer, as a subcontractor, to help complete the client project. Lucky for us, this means you can also deduct that expense — as long as there is a contract in place aligning details of the arrangement.
“Wait, there is a self-employment tax?” you ask. Sure is! Freelancers are essentially double-taxed, as both the employee and the employer. So in addition to paying income tax (imposed on individuals and businesses), freelancers are obligated to pay into an additional self-employment tax, a Social Security and Medicare tax for individuals who work for themselves. However, you can deduct half of your self-employment tax on your income tax, which may seem counterintuitive. Regardless, take note and be sure to do so this tax season.
Self-employed people who save for retirement can qualify for tax deductions and credits, deferring income tax by contributing to a 401(k), SEP IRA, Roth IRA or Traditional IRA retirement account. Personally, I contribute 10-15 percent of my income each year to a 401(k) account and am considering opening an Individual Retirement Account (IRA) account through a provider like Honest Dollar. Tax benefits and saving for retirement? That’s a win-win in my book, especially when you’re your own boss.
My favorite deduction to equally loathe: unpaid invoices. It’s a problem among freelancers, with freelancers being stiffed an average of $5,968, according to a study conducted by Freelancers Union in 2015. I’ll save my nightmare nonpayment story for another day, but just remember that if a client disappears on you without paying their invoice, you can write that off as bad debt.
There are many, many more tax deductions available to those who are self-employed, which are always changing year after year as the gig economy expands and sets the pace for a new workforce. So be sure to research other qualified deductions that work for you. Hint, hint: Check out Freelancers Union’s blog or CPA for Freelancers’ website, talk to fellow veteran freelancers or contact a local tax professional to help you one-on-one.
Which tax deductions are most valuable to your freelance business? Share them with us by using the hashtag #freelancelifetaxes or tweeting us at @comstocksmag.
Follow Cherise’s journey every month as she navigates the freelance life.
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