5 Overlooked Tax Deductions For Freelancers

Save money on your taxes with these business deductions!

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Citizen Upgrade is not a registered investment, legal or tax advisor, or a broker/dealer. All investment/financial opinions expressed by Citizen Upgrade are from the personal research and experience of the author and are intended as educational material for informational purposes only.

It’s that time of year again, when the air begins to warm and flowers begin to bloom… you guessed it, it’s tax season! For “9 to 5” workers who receive a W-2 form from their employers, filing a tax return is usually a simple matter. Your taxes are usually deducted from your paycheck, and if you’ve selected your “withholdings” properly your tax bill or refund should be nominal.

For freelancers however, tax season is an opportunity to reflect on the previous year and the “costs” associated with doing business. Correctly tallying business costs maximizes the “deductions” you are allowed to take off of your annual earnings before calculating your final tax liability. Think about it like this: you spent money to earn money (shipping fees, wear and tear on your car, client meetings, business cards, etc.), so you have to account for this when calculating your annual “profit.” Not including all of these expenses would result in paying more taxes than you truly owe, which we can all agree is something to avoid.

Whether you file your taxes by yourself or via a tax accounting firm, it pays to get organized and track your expenses over the year. If you weren’t tracking your expenses like this in 2021, you can dive in your receipts drawer or, better yet, review your credit card annual spending summary. Although this type of “forensic” accounting isn’t the most efficient, the time will be well spent if you can find a few extra expenses to deduct from your tax bill. Below are five often overlooked deductions freelancers should consider while filing their paperwork. When in doubt, consult your tax professional to determine if these deductions apply to your unique situation!

Home Office

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“If you use part of your home exclusively and regularly for conducting business, you may be able to deduct expenses such as mortgage interest, insurance, utilities, repairs, and depreciation for that area. You need to figure out the percentage of your home devoted to your business activities, utilities, repairs, and depreciation.”

-Source: IRS.gov

While the home office deduction can be a bit complicated, it is worth your while to explore the details to see if you can utilize it since it can significantly offset your tax liability. The deduction will be calculated based on a percentage of expenses related to your home office square footage, including rent, utilities, depreciation, and property taxes. Using a home maintenance log book will help you track the expenses throughout the year.

How To: Make a Property Maintenance Log Book

Track and Schedule Upkeep for Your Home or Real Estate Portfolio

Office Supplies & Productivity Tools

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A wide variety of office supplies and productivity tools are allowable as deductible expenses if used for your business activities. This could include paper, pens, printer ink, online subscription tools (e.g. Grammarly and Shutterstock), and software.

Professional Development

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Professional development activities related to your freelance business can also be deductible. This includes conferences, courses, and skills training, particularly if these are required to maintain your business licenses or certifications.

Marketing

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Freelancers often utilize a variety of methods to market their business to potential clients. This could include business cards, mailers, and advertising fees on Facebook, Youtube, Twitter, Amazon, etc. These should all be considered business expenses and deducted from your bottom line at the end of the year.

Other Freelancers

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If you completed a $10k project, but spent $5k on it hiring sub-contractors (e.g. researchers, graphic designers, or editors), then your taxable “profit” should only be considered to be $5k. If you hired these contractors directly, and paid them an amount over a certain cash threshold ($600 for the 2021 tax year), you will also need to issue your subcontractor a “1099 form.” If you hired them via a platform like Fiverr (referral link) or Upwork, then you don’t have to issue this form.

Your Bottom Line

When it comes to freelancer taxes, your recipe for success is as follows:

• Get organized
• Keep your receipts
• Ask for help when you need it

Here’s an article from the Freelancers Union with some important updates to consider for this season. For more in-depth reading on freelancer and small-business tax planning, see the resources below:

Disclosure: The links below contain Amazon affiliate links to products. Purchasing via these links supports our writing at no extra cost to you!

The Property Maintenance Log Book (Citizen Upgrade)

The Money Book for Freelancers, Part-Timers, and the Self-Employed: The Only Personal Finance System for People with Not-So-Regular Jobs (Joseph D’Agnese)

475 Tax Deductions for Businesses and Self-Employed Individuals: An A-to-Z Guide to Hundreds of Tax Write-Offs (Bernard B. Kamoroff C.P.A.)

The Ultimate Freelancer Tax Guide (Caitlin Pyle)

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