Did you know that freelancers can take a lot of tax deductions? In 2022, there are several freelancer tax deductions you can claim to reduce your taxable income. The thing is, there are many deductions you may be eligible for, but not everyone is familiar with them all.
As a freelancer, you are responsible for tracking your income and deductions. This can be tricky, especially when it comes to tax time. In this guide, we will provide an overview of the most common deductions and what you need to do to qualify.
We will also provide tips on how to track these deductions throughout the year. By following these tips, you can ensure that you get the most out of your freelance business! Keep reading to learn more.
- 1 What Are Freelancer Tax Deductions and Why Do They Matter to You as a Freelancer?
- 2 Home Office or Work Space
- 3 Business Use of Your Car
- 4 Mileage Reimbursement
- 5 Business Losses
- 6 Equipment Depreciation
- 7 Contractor Fees
- 8 Office Furniture and Equipment
- 9 Advertising and Marketing Expenses
- 10 Professional Association Dues
- 11 Continuing Education Course/Professional Development and Related Expenses
- 12 Travel Expenses Incurred While Conducting Business
- 13 Research Materials and Resources
- 14 Phone Usage and Internet
- 15 Taxes Paid on Self-Employment Income
- 16 Charitable Contributions Made by or on Behalf of the Business
- 17 Health Insurance Premiums Paid by the Business Owner
- 18 Retirement Plan Contributions Made by the Business Owner
- 19 Hardware and Software
- 20 Transaction Fees
- 21 Interest Paid on Business Loans
- 22 Legal and Professional Services
- 23 Business Start-up Costs
- 24 Business Related Meals
- 25 Online Presence
- 26 How Can You Maximize Your Tax Deductions as a Freelancer in 2022?
- 27 How Can You Keep Track of All Your Expenses Throughout the Year?
- 28 Prepare For Tax Season
- 29 Learn More
What Are Freelancer Tax Deductions and Why Do They Matter to You as a Freelancer?
Tax Deductions for freelancers are a method to help you reduce the tax burden on your income. If you’re working as an independent contractor, it is imperative that you understand and utilize freelancer tax deductions for 2022 properly.
This will not only allow you to keep more money in your pockets but also avoid running into any legal trouble with the government or Internal Revenue Service (IRS).
These expenses go towards reducing the amount of income you have to pay taxes on.
Additionally, not many freelancers realize how much they can actually write off come tax season. That’s why your tax deductions should matter.
Home Office or Work Space
So, here’s the thing, if you work from home and you operate your business out of a home office, or even from your couch, the things that make up your home office that you use to conduct business are technically a write-off for tax purposes. These could be things such as your printers, computers, and any other office supplies that make up your office space.
This deduction in particular is usually filed on Schedule C or Form 1040. Keep in mind that you’ll still want to complete Form 8829.
This is the business use of home office expense as part of Schedule C profit or loss from business. This deduction is available to any freelancer who has a dedicated workspace in their home.
Some of the costs you can claim include mortgage interest, property taxes, rent, and utilities. If your business requires you to travel for work, then this may also be a deductible. The thing that most people don’t realize is, they really can deduct a portion of their mortgage or their rent cost if they utilize space in their home to operate their business.
The thing is, the space has to be for business purposes. Other than that, your home office or workspace is a tax deduction.
Keep in mind that this also applies if you rent out space specifically to work outside of your home. This could apply to co-working spaces, and even utilizing office space from the features that a virtual office subscription gives you.
Business Use of Your Car
If you drive for work-related purposes such as client meetings, this may be deductible as a business expense. The rules are different if you use your car for both personal and business purposes, so please consult with an accountant before making any claims about automobile usage on your taxes.
A few great tax tips for freelancers are to find and commit to using a mileage tracking app. There are apps on the market today that make tracking your business-related miles very simple. This can come in handy when tax season rolls around.
Many of these apps also offer organizational features so that you can easily differentiate between the miles you drove for work and those that you drove for personal usage. Another helpful tip would be to keep a travel log in general.
Whether you are driving your car, catching a flight, getting onto a bus, or purchasing a train ticket, having all of your travel expenses in the same area can be helpful.
If you use your personal vehicle for business purposes, then there are a few deductions you can claim on your taxes. You may be able to deduct mileage expenses (the IRS currently allows 58.5 cents per mile) or parking and tolls paid during the year.
Unfortunately, not all businesses are successful. If yours isn’t in 2022, then you can write off any related losses on your taxes. This includes things like office supplies, rent or mortgage payments, and more.
Anything that you used to run your business may be eligible for a write-off if you experience a loss of that business.
Equipment Depreciation is a common tax deduction for freelancers. This is the amount you can deduct from your taxable income for the decline in value of qualifying property used in your business.
Keep in mind that there is usually a deduction limit associated with this. You can claim this deduction whether or not you itemize deductions on Schedule A (Form individual).
If you are a freelancer who works as an independent contractor, this deduction is available to you. Your meals and entertainment expenses must be incurred while away from home on business-related travel or when entertaining clients at your residence (or somewhere else). You can deduct up to a certain amount of these costs.
You might also find it interesting that any gift that you sent to clients or employees is 100% deductible. However, this only applies to $25 per person, per year.
Office Furniture and Equipment
The cost of furnishing and equipping your home office is one of the 2022 tax deductions for freelancers. This includes the cost of desks, chairs, lamps, computers and other office equipment. This is as long as they’re used solely for work purposes.
Think about it like this; whatever you use in your office to create a usable and efficient work area and to handle your operations, can be a write-off.
Advertising and Marketing Expenses
The IRS classifies advertising, marketing, and promotional expenses as ordinary business expenses. That means you can deduct these costs from your taxable income in the year you incurred them.
As a freelancer, you may have spent money on:
- Creating brochures or other printed materials
- Paying for online ads to promote your services
- Sponsoring an event that relates to the work you do (or attending industry conferences)
- Purchasing SEO packages or social media management tools
- Hiring another person or agency to manage your digital marketing campaigns
You can also write off any shipping fees associated with sending out marketing materials as well as any additional credit card processing fees paid specifically for those transactions. If an accountant or bookkeeper charges you to help with your taxes, that fee is also tax-deductible.
Keep in mind, however, that there are some restrictions on what can be claimed as a marketing expense. For example, promotional items such as mugs or pens with your business name and contact info printed on them are generally not considered deductible.
And if you receive free products or services from a vendor in exchange for advertising their company, the value of those items must get deducted from any related expenses reported on your return.
Professional Association Dues
If you pay any membership dues to a professional organization related to your freelance work, then these costs may also be deducted from your taxable income. Make sure you have receipts handy come tax time.
This goes into professional development or maintenance.
Oftentimes some organizations add credibility to your professional background. Paying membership dues to these organizations is very much necessary especially depending on the industry that you are in.
Being a part of an organization can increase your exposure, and client reach. Therefore, it’s related to the operations of your business, making it deductible.
Continuing Education Course/Professional Development and Related Expenses
Any courses or training related to maintaining or developing your skills as a freelancer are deductible. This includes things like books, tuition fees, software subscriptions, and more.
How large companies would provide employees with continuing education stipend every year, or how large corporations would host conferences or send their employees to gain a new certification or learn something new, you can do the same for yourself as a freelancer.
Continuing education and professional development is a normal part of career advancement. There is no difference between when a company sends an employee to gain new skills and when you send yourself to a conference to learn those same skills.
Travel Expenses Incurred While Conducting Business
Business travel expenses are also eligible for deduction. You should consider all travel expenses such as bus and train tickets, rental car fees, or plane tickets to be deductible. You can also include the following:
- Dry cleaning
- Promotional materials that you might have to use
- Any other travel-related expenses that are for business purposes
You might also like to know that freelancers can use the per diem method. However, you can only utilize per diem for incidental expenses and meals. So, this means you cannot use per diem for lodging.
Additionally, keep in mind that only the part of your trip that is for business-related activities can get written off. So, personal days and travel between home and work don’t count.
Research Materials and Resources
Research Materials and Resources can be a great tax deduction for freelancers. Remember, the IRS allows you to deduct any expenses that are related to your work, including the cost of research materials and resources you need to do your job.
This can include anything from office supplies to software subscriptions, or resources for vetting clients or others you may work with.
Phone Usage and Internet
As a freelancer, you can write off your phone usage and internet costs on your taxes. This is because these expenses are often considered business expenses. Be sure to keep track of your monthly bills and receipts so that you can claim these deductions.
There are a few things you want to be aware of when claiming phone usage and the internet as tax deductions. First, the expense must be directly related to your work as a freelancer.
Second, the deduction cannot exceed a certain percentage of your adjusted gross income (AGI). Finally, you must itemize your deductions to claim this deduction.
If you meet all of these requirements, then be sure to include your phone usage and internet costs on Schedule C when filing your taxes.
Taxes Paid on Self-Employment Income
The self-employment tax is often levied on any net income over $400, which means there’s no need to calculate it separate from other incomes like salary or wages. However, if you earn less than $400 net, then there’s no self-employment tax at all.
Charitable Contributions Made by or on Behalf of the Business
As a freelancer, you can write off your charitable contributions made by or on behalf of the business. This includes donations of money, goods, or services to qualified organizations. Be sure to keep track of all your donations so you can include them on your tax return.
Qualified organizations must get approved by the IRS. Some common examples include churches, schools, and nonprofit groups.
Health Insurance Premiums Paid by the Business Owner
If you pay for health insurance and it wasn’t provided by an employer, deduct that amount from your income taxes. Anyone self-employed could be eligible to deduct up to 100% of their health insurance premium.
This is great news as you can claim the self-employed health insurance deduction. This allows you to receive an advanced premium tax credit if eligible.
Retirement Plan Contributions Made by the Business Owner
Retirement plan contributions can be a great tax deduction for freelancers. To qualify, the contributions must go to an IRA or 401k plan. Contributions can be made up until the date of the tax return filing, and they will lower your taxable income for that year.
Hardware and Software
Sometimes it’s essential for freelancers to have certain types of software. Whether you’re a graphic designer and need the entire Adobe suite, or you’re a writer and need access to advanced writing and editing software, these tools are vital to do your job.
Luckily, if you purchased any software that is only used for business purposes, you can claim the cost as a deduction. As you should already know, make sure to keep your receipts.
Freelancers can write off the costs of their transactions on their taxes. This includes fees for PayPal, Stripe, and any other payment processors you use. Be sure to keep track of these expenses throughout the year, as they can add up.
You’ll need to provide documentation of these payments, such as receipts or invoices from the processor. To claim your deduction, you’ll need to enter the amount in Box C on Form Schedule C.
Interest Paid on Business Loans
If you took out a loan to help finance your freelance business, then the interest payments on that loan are deductible. This is something that you need to have to get your business started. Any interest paid on a loan or credit card used for business purposes will be deductible from your taxable income.
Legal and Professional Services
If you hire an attorney to help with contracts, taxes, or other legal matters related to your freelance business, those costs are tax-deductible. You can also deduct the cost of any professional services such as accountants, consultants, and bookkeepers that assist in running your freelance business.
Business Start-up Costs
Any costs incurred when starting up your freelance business can usually be written off on your taxes. This might include things like advertising, website development fees, etc. The rule here is that most things that are used to get your business up and running, are start-up costs.
Business Related Meals
When it comes to meals while traveling out of town or entertaining clients, there are several deductions available to freelancers. For example, you could claim up to $50 per person per meal if you took them out for dinner and $25 per person per event with entertainment.
This plays into the categories of what you need to operate your business. As a freelancer, you have to have a way to gain and maintain clients. The internet is often used for that. This means that you will need to maintain a consistent online presence to be able to market yourself to the clients you want to have, or the communities that you want to serve.
The platforms and methods that you use that require you to pay for them can be written off.
How Can You Maximize Your Tax Deductions as a Freelancer in 2022?
The first thing to do is to make sure that you’re keeping track of all your expenses for the year and have a good accounting system set up. It will save you a lot of time when tax season comes around.
For freelancers’ taxes, there are many deductions available. Here are some of them:
- Travel costs
- Home office expenses (including equipment)
- Professional development fees like attending conferences or purchasing educational materials online
- Health insurance premiums
- Retirement plan contributions
Some other items may also be deductible depending upon circumstances. It could include the following:
- Self-employment tax paid quarterly throughout the year
- Estimated federal income taxes submitted three times on an annual basis with projected earnings from contracts entered into between now and December 31st
- State taxes required for freelancers with sales tax nexus in multiple jurisdictions (e.g., California)
- Corresponding filing fees charged by those entities that require registration before making taxable supplies
When it comes time to prepare your freelance income tax return, you’ll need all of these receipts together so they’re easy to access during your tax preparation.
How Can You Keep Track of All Your Expenses Throughout the Year?
As a freelancer, your income will likely flow in a sporadic way throughout the year. This can make it difficult to keep up with your expenses. But if you don’t track them, then you won’t be able to claim any tax deductions when it comes time to file.
In order for a business expense or deduction to be valid on your taxes as a freelancer in 2022, three criteria must be met:
- It has to have been incurred during the fiscal year
- It must have been used for earning taxable income.
- It must be ordinary and necessary in the context of your trade or profession.
For the point made about your deductions needing to pertain to what’s used to earn taxable income, that means that no personal use is allowed. For example, if you bought groceries for your home, you can’t claim those groceries as a business expense because they weren’t used for earning taxable income.
Also, for things that are considered necessary, this means that something is common to all businesses.
Additionally, you’ll want to keep track of all receipts related to your business. This includes everything from office supplies to postage stamps. You can use a simple spreadsheet or an app to keep track of your expenses as they occur throughout the year.
Freelancers have some unique considerations when it comes to taxes, so it’s important that you understand what deductions are available to you. Doing so will ensure that you are staying organized, and that you’re not missing anything. By keeping track of your expenses throughout the year, you can make sure that you claim all of the deductions to which you’re entitled.
Prepare For Tax Season
Navigating your freelancer tax deductions can be tough. If you know what you can write off, it can become a pretty simple task. Tax Savers is a great place to get tax advice and to learn from industry experts.
If you’re working as an independent contractor, it’s vital to have everything in order as payments come along so that you always know what’s expected of you, and what you can expect to receive back in the form of a refund.
If you’re interested in more insider tax tips, see how we can help today.