9 Best Tax Deductions For Freelancers To Claim
Freelancing full time or part time can offer you job flexibility and an extra stream of income, but the taxes can be a headache. When you earn income without having taxes withheld, you’re responsible for estimating and paying taxes on your own.
If you underestimate what you should be paying throughout the year, you could wind up with a huge tax bill at tax time. But if that happens, several tax deductions are available to freelancers that can reduce your tax burden.
What Are Freelancer Tax Deductions?
Freelancers and independent contractors can deduct certain business-related expenses from their income to reduce their tax liability. And you don’t have to run a full-fledged business operation to qualify for the deductions.
“It is common for food delivery apps like Uber to use the independent contractor structure for its drivers,” says Eric Bronnenkant, a certified public accountant and the tax expert for the robo-advisor Betterment.
This means even part-time ride-hailing drivers and others who work in the gig economy may be able to deduct expenses for gas, car maintenance, phone service and more.
Best Tax Deductions for Freelancers
A business expense has to be a “necessary and ordinary cost” to qualify as a deduction—meaning no personal expenses. The best write-offs for you will depend on the type of business you run.
Here’s a breakdown of the top deductible expenses for freelancers.
1. Advertising, Marketing and Internet-Related Expenses
The cost of running ads, designing your website and keeping it up and running may be tax-deductible as long as the expenses are essential for your business.
2. Office and Work Supplies
The cost of supplies and equipment—such as laptops, printers, books and other items—may also be deductible. You could either deduct the cost of the equipment all at once or depreciate a larger asset, like a computer, and claim those costs over time.
3. Car Costs
Freelancers may be able to deduct expenses for a vehicle used for business, including depreciation, lease payments, gasoline, tires, insurance and registration fees.
But there’s a caveat: If you use your car for both personal and business use, you’ll have to calculate the number of miles you drive strictly for business, and use that mileage to determine your deduction.
4. Business and Health Insurance
Premiums for liability, malpractice and other types of insurance for your business may be deductible. If you’re self-employed and meet certain conditions, you may also be able to write off health insurance premiums for yourself, your spouse and your dependents.
5. Business Memberships
You can’t deduct dues for country clubs or recreation centers, even if those memberships help you drum up business. But memberships in the local chamber of commerce, professional organizations or trade associations may qualify for a deduction.
6. Education Expenses
Courses and other education costs related to your business may be written off, and if you travel for classes or to attend a conference, the travel costs may be deductible as well. But you must be able to prove that the education helps you maintain or improve your skills.
7. Legal and Professional Fees
Suppose you hire a legal professional to help you file a trademark or draft your freelancer contract. The fees, plus the cost of accounting and bookkeeping services, may be deductible.
8. Home Office Expenses
If you have a dedicated space in your home where you regularly and exclusively conduct business, you may be able to take the home office deduction. This could be a boon if you’ve chosen a home with an extra room or two to accommodate your business.
9. Retirement Contributions
Contributing to a traditional IRA, SEP IRA or SIMPLE IRA can offer a tax break while helping you save for your later years. Just keep in mind that the exact deduction amount may be impacted by how much you earn and whether you or your spouse is covered by a job-based retirement plan.
For example, say you file taxes as a single person, have a full-time job that offers a 401(k) plan, and freelance on the side. Because you have a retirement plan through work, the amount you can deduct for IRA contributions may be reduced if your modified adjusted gross income is between $68,000 and $78,000, and there may be no deduction at all if your modified AGI is over $78,000.
Can Freelancers Take the Standard Deduction?
Freelancers may take deductions for business expenses and still choose to take the standard deduction. That’s because some business expenses qualify for what are known as “above-the-line” deductions, which are available regardless of the choice to itemize.
Business expenses that can be claimed as above-the-line deductions include health insurance premiums if you’re self-employed, some student loan interest and contributions to certain retirement plans.
Itemized and standard deductions are reported “below the line” after business income and expenses are factored in and adjusted gross income is calculated.
How To Claim Tax Deductions
Freelancers who don’t have a formal business structure, such as a corporation or partnership, must report business income and taxes on a Schedule C attached to Form 1040. In Parts II to IV of Schedule C, you can list business expenses and information about your car.
If you contribute to a SEP IRA, SIMPLE IRA or another qualified retirement plan, you’ll report those contributions on Schedule 1, Part II: Adjustments to Income.
The best tax software for the self-employed can help you fill out the tax documents through a question-and-answer format, which makes reporting freelancer income and expenses easier.
Tips for Freelancer Tax Deductions
If you’re writing off freelancer expenses for the first time or you simply want to make sure you have all your bases covered, follow these tax tips.
Keep Good Records
Put receipts for expenses somewhere safe to ensure you have a backup for each deduction you claim. “If a business expense cannot be supported due to lack of documentation during an audit, that may end up needlessly causing an additional tax liability,” says Betterment’s Bronnenkant.
Open Separate Bank and Credit Card Accounts
Setting up different financial accounts for business and personal activities can make it easier to keep track of transactions. Otherwise, mixing up expenses can create headaches because it can be hard to justify which expenses aren’t personal.
Get Help When You Need It
Tax help could cost a few hundred dollars, but you may be able to deduct the cost of tax prep services on your next tax return to recoup the expense.
Let’s face it—chances are you have enough on your plate while juggling clients and gigs. Hiring a tax professional can help you navigate each tax form for freelancers with less hassle.