Prepping—and paying—taxes are right up there with visiting the dentist: things we dread that can be painful.
Taxes aren’t something you can take lightly as a freelance professional. Here we look at what kinds of deductions you are eligible to take as a freelancer.
But first a disclaimer: We are not tax preparation or accounting professionals. Before you use any of the following deductions, please contact a licensed tax preparation professional. Also, while this information is aimed at U.S. residents, international freelancers can use this framework to ask questions of their own tax preparation expert.
As a freelancer, you can benefit from many IRS-approved deductions you’ll want to look into and account for throughout the year. To determine what you owe for the year, gather all your 1099 forms from the clients with whom you did work. (You should have already completed a W-9 form when you were first hired.) Companies have a hard deadline of January 31st each year to send you these forms. If you don’t receive them by then, you should follow up. Once you gather all these documents, look at Form 1040-ES that will you calculate what you should owe.
Now it’s time to offset what you’ll be paying the federal and state government. How do you do that? Offset what you owe with deductions.
For example, if you made $100,000 from freelancing but had $20,000 in business expenses, you’d be paying taxes on $80,000 versus $100,000.
Here are a few tax deductions for freelancers you should look into and prepare for with your tax professional.
1. Home Office
In 2017, the Tax Cuts and Jobs Act eliminated the home office deduction for employees. That means that if you are considered a full-time employee by a company, you could no longer deduct your home office.
However, the good news for you is that self-employed individuals who use their home office as a primary place of business are still eligible to make this deduction.
You can claim this deduction whether you own your home or rent. The one strict rule is that you must have a space that is only used for business. Your guest bedroom that doubles as your home office doesn’t count!
There are two ways to calculate the home office deduction. Most tax preparation software will have easy fill-in boxes, but a tax professional will be your best guide.
Simplified option: This is the square footage of your office space multiplied by a set rate.
Standard method: This requires more calculations based on actual expenses, which include rent/mortgage, insurance, utilities, repairs, etc. This figure is based on the percentage of your home used for business. For instance, if your home office occupies 10% of your home, you could deduct 10% of your monthly mortgage to offset your tax bill.
2. Office Supplies and Office Expenses
These two categories are similar but treated differently. Office supplies are typically things that are expendable like paper, pens, printer ink, paper clips, staples, notebooks, and tape. Generally, you should keep receipts and tally up these expenses to offset their full cost.
Office expenses are things like:
- Software: Any programs you use to run or build your business (QuickBooks, Microsoft Office suite, etc.) are deductible.
- Your website: The hosting fee, domain name cost, and any other expenses associated with the maintenance of your website, including the fee to hire someone to build it and maintain it if you go that route, are deductible.
- Computers and big-ticket equipment: For bigger purchases, like a new laptop, you can choose to deduct it all at once or deduct the depreciation over a series of years. If the cost of the item is under $2,500, you can opt to deduct it all at once.
- Home office furniture: A desk or chair purchase for your home office is deductible, too. Like big-ticket items, you can opt for a deduction or depreciation.
- Internet and mobile phone: You can deduct a percentage of your bills for internet access and mobile phone usage for client calls.
3. 401(K) or IRA
If you previously worked for a company that offered retirement benefits, you may think that you’ve lost the opportunity to save for your own retirement. You may not be getting the benefit of an employer offering a 401(K) match, but if you are a sole proprietor or an LLC with just one employee (taxed the same as a sole proprietor), then you can match your own 401(K) contributions. As a self-employed business owner, you are the employee AND the employer.
As the employee, you can contribute up to $22,500 for the 2023 tax year. This is a higher amount for those over age 50. Just google “401(K) contribution limit for [year].” As the employer, you can contribute up to a percentage of your compensation. A tax pro or most tax software can help you work through the math.
For traditional IRAs, you may also be able to deduct your contribution. This is a little trickier as it depends on whether or not you or your spouse (if you are married and filing jointly) have a retirement plan at work and your income exceeds certain levels. If you/your spouse do not have a retirement plan from an employer, then the full amount is deductible.
4. Professional Development
Did you take any courses to improve your business or freelancing skills? These can be online or in person. You can deduct the cost of certain professional development training.
Other professional development-related expenses include:
- Books: Have you bought books that you read specifically to help you grow your business? You can deduct these! (Looking for inspiration? Check out some of our book recommendations here >>)
- Subscriptions: If you subscribe to industry periodicals to keep your business skills sharp, you can deduct the cost of these subscriptions.
5. Legal and Professional Services
If you hired a lawyer to help you incorporate (although this is generally not necessary for a freelancer), an accountant to prepare your taxes, a graphic designer to create your logo, or similar professionals to help you with your business, you can deduct those costs.
6. Advertising Costs
Did you use Facebook/Meta or Google ads to promote your business? Did you take out an ad in the local newspaper? Or did you print a bunch of flyers to mail? The cost of advertising your business is deductible. Just make sure to save those receipts!
7. Business Travel
If you’ve driven to meetings with clients, you can deduct the cost of that travel. Most people tend to use standard mileage: Track the miles you drive for business and then multiply them by a certain amount to see how much you can deduct. Standard mileage for 2023 taxes is 65.5 cents for every business mile driven.
You do need to keep track of all your expenses and hold on to receipts (both physical or digital) in case of an audit. If you haven’t already started or developed a system for tracking your expenses, start it now! And don’t forget to set aside taxes whether you’re paying quarterly estimated payments or in a lump sum.
Again, it’s best to check with your tax preparer at the start of each year so you can keep track of deductions in real time. This will make your life so much easier than trying to dig up receipts come tax time!
Have you been tracking your deductions this year? Is there anything you’re surprised you can or cannot deduct? Let us know in the comments below!