If you are a self-employed, gig worker, or business owner you must have dealt with the daunting task of filing your self-employment taxes and must have pondered about ways to maximize your savings.
However, the good news is that the IRS offers Self-employed Individuals, Small Business Owners, LLCs, and Sole Proprietors the ability to seek deductions on anything which is considered “ordinary and necessary” to operate their businesses. This means, if you require certain items or services to maintain your business, you can write off those expenses on your tax return.
But, there’s a catch, the IRS doesn’t really provide a list of deductions that can be claimed by every freelancer. Since every freelance profession tends to involve a different set of deductions.
Here, we have prepared a list of some of the most common freelancer tax deductions available to self-employed workers:
Car/Mileage
As a self-employed worker, freelancer, or independent contractor if you own a car and use it for business purposes, you can deduct mileage and car-related expenses. For many self-employed workers, mileage is one of the most advantageous deductions on their tax returns.
Generally, there are two methods to claim the mileage tax deduction:
- Standard Mileage Method- You can multiply your business miles driven by the standard rate (58.5 cents in 2022). This amount includes driving costs, gas, repairs/maintenance, and depreciation.
- Actual Expenses Method- You can track the actual costs of operating your car. Qualified expenses for this purpose include gasoline, oil, tires, repairs, insurance, tolls, parking, garage fees, registration fees, lease payments, and depreciation licenses.
Education
As per the IRS, you can deduct your education expenses from your taxes, however, to be eligible for the deduction, the following conditions must be met:
- The education must help in maintaining or improving skills for your business
- Education must be required by law to maintain status/certification
- The course or the program you undertook, must relate to your current business
Moreover, with the education tax deductions, you can write-off all the qualifying work-related education expenses, such as-
- Tuition and fees
- Room and boarding
- Transportation
- Online courses
- Subscriptions
- Internet fees
- Research & typing
Student Loan
If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income this includes student loans, tuition, and fees, transportation, etc. Some of the student loan expenses include American Opportunity Credit, Lifetime Learning Credit, Coverdell Education Savings Account, etc.
Home Office
A flexible workplace and access to work from home are one of the greatest perks of being a freelancer. Having a home office also provides you with a significant tax deduction.
In order to be eligible for the deduction, you must use part of your home exclusively and regularly for conducting business. Moreover, you must prove that you use your home as your principal place of business.
With the home office deduction, you can write off expenses related to mortgage interest, rent, utilities, real estate taxes, maintenance, furniture, equipment, cleaning supplies, etc.
Business Travel & Meals
As an entrepreneur, freelancer, independent contractor you can claim tax deductions for your business travels, this includes expenses such as transportation, lodging, meals, Wi-Fi, shipping, and dry cleaning.
If you wish to deduct business travel from your taxes, your trip must be:
- Mostly business-related
- An “ordinary and necessary” expense
- Someplace far away from your “tax home”
Similarly, you can deduct business meal expenses from your taxes. The IRS describes a business meal as the following: food and beverages provided to a current or potential business customer, client, consultant, or similar business contact.
Utilities
As a self-employed worker, if you have a home office, you can partially deduct your utility bill. If you happen to have rented office space for your business, you can deduct the entire cost of the utilities.
Rent
For freelancers, rent can be one of the biggest tax deduction opportunities available. As a freelancer, you can deduct the expenses from all your rental properties. So, any rent you pay for the warehouse, office space, apartment, you can deduct from your taxes.
Advertising & Marketing
As a freelancer, you can deduct all ordinary and necessary business expenses, which also include advertising and marketing expenses, such as-
- Advertising in various media- newspapers, TV, internet, cable, and magazines
- Marketing activities
- Promotional and public relations expenses
- Online activities
- Producing advertising materials
- Costs of advertising events
Phone and internet
Cell phone and internet costs are necessary to run any business, and if you happen to use both regularly for conducting your business then you may get a deduction. You can deduct your entire bill if you have a separate business cell phone or internet connection. If you don’t have a dedicated line, you can deduct the percentage used for business.
Memberships & Subscriptions
As a freelancer, if you happen to be a member of a professional association, a networking organization, or subscribe to business/trade journals specifically to help you in your business, you can deduct these costs.
Subscriptions to magazines, newspapers, journals, newsletters and similar publications can also be a deductible expense.
Credit Card Interest
The interest you pay on a credit card is considered as a personal expense, however, it’s a different story if a business is involved. To convert your credit card interest into a deductible, your credit card debt must be related to your trade or business activity.
Office Supplies
Any equipment or supplies you need to perform your job qualifies as a deductible expense. This includes any and all office supplies and materials.
Business Loan
If you take a business loan, you can write off your interest payments as a business expense. The IRS generally demands certain conditions to qualify your business loan:
- You must be legally liable for the loan
- You and the lender must unanimously agree that you intend to pay off the debt
- And you and the lender have a true debtor-creditor, or lender-borrower, relationship
Charitable Contributions
Charitable contributions can reduce your tax bill if you choose to itemize your taxes on Schedule A on Form 1040. To be deductible, you must make contributions to qualified organizations. Contributions to individuals, political organizations, and candidates are never deductible.
Consulting and Professional Service Fees
Claiming back expenses is a source of relief for freelancers and small business owners. So, if you are self-employed, you can deduct fees that you pay to attorneys, accountants, consultants, and other professionals if the fees are incurred for business matters.
Retirement Plan
If you are a self-employed small business owner, you can set up a qualified retirement plan for yourself and your employees. The best part is that you may be able to claim a deduction on your individual federal income tax return for the amount you contributed to your IRA.
Health Insurance
As a self-employed individual, you can claim a deduction on your healthcare premiums, regardless of whether you itemize your deductions or not. However, you may be ineligible for the deduction if you participate in another employer’s plan and elect not to, or you have another job that offers a health plan, or you receive coverage through a spouse’s employer-sponsored plan.
Start-up
Startup expenses can be costly, but the good news is the Internal Revenue Service (IRS) cuts business owners a bit of a break when it comes to taxes. So, you can deduct the costs associated with running your business including the advertising & marketing expenses, bank fees, wages & salaries, furniture, COGs, meals, travel, etc.
Home Loan
The home mortgage deduction is one of the most popular in the US tax code, since it allows you to deduct, within limits, the interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home or a second mortgage.
To be eligible for home mortgage interest deduction you must file form 1040 or 1040-SR and itemize deductions on Schedule A. Moreover, you need to ensure the mortgage is a secured debt on a qualified home in which you have an ownership interest.
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