Taxes are an inevitable part of being a small business owner. If you own your own business or work as an independent contractor, you know that your tax bill can quickly add up. The more successful you are, the more money you owe. You have probably heard of the saying “it takes money to make money”, well when it comes to your taxes, it can also save you money on your tax bill. That’s right, most of the expenses you incur over the course of the year actually qualify as self employed tax deductions.
Best Deductions for Freelancers
If you work freelance or as an independent contractor, you are considered self employed. In which case you set your own rate and hours. You are also responsible for collecting payment from your clients and remitting your taxes on your own. This is where having a good accounting system in place is really important to keep track of cash flows, maintain your invoices, pay bills, and track expenses.
Expense tracking is one of the most important aspects of accounting for your business, as it can provide some much needed tax relief in the form of tax deductions. Tax deductions work to lower your taxable income. Business expenses that are considered ordinary and necessary to your business may be considered a deductible expense. When you leverage these deductible expenses against your income, you can effectively lower your taxable income, saving you money on taxes. Here are some of the most common self employed tax deductions.
Rent / Utilities
One of the biggest expenses you may incur if you are self employed is the rent you pay for your office space. If you lease space for the purpose of conducting business, this expense is tax-deductible. In addition, if you also have a home office, you may also deduct a portion of your rent or mortgage. You are allowed to claim up to 300 square feet at $5 per square foot of home office space. Please be advised, if you plan to take the home office deduction, you must have a dedicated home office space. A peace of real estate on your kitchen counter does not count.
Advertising / Marketing
Advertising and marketing expenses are some other expenses that can quickly add up. They also qualify as a deductible expense, meaning the money you spend on online marketing, content marketing, social media marketing, and even radio and tv commercials are all deductible. This also applies to traditional marketing expenses like business cards, flyers, and promotional material.
Having a strong internet connection is crucial for business these days. Since it is a necessary business expense, it is also tax-deductible.
If you have a dedicated business phone line, you can deduct the costs. Your cell phone may also qualify as a deductible expense. If you use one phone to conduct both business and personal calls, you will have to calculate the percentage used for business. However, if you have a separate cell phone just for business, you can deduct 100% of the costs.
You can also deduct the professional fees, like for lawyers and accountants. You can deduct these costs over the course of the tax year.
Software / Web Apps / Hosting
When it comes to running your business, staying up to date on the latest software is a must. Many industries rely on specific software to run their business. You can deduct costs associated with purchasing and developing software. Software expenses can also include cloud-based subscriptions and web hosting fees.
Professional Memberships / Subscriptions
Staying up to date on the latest professional news is crucial. Many business owners subscribe to some professional journals and publications to stay current. Subscription costs for these services are deductible. Common examples include trade journals and business periodicals, like the Wall Street Journal.
You may also choose to belong to a professional organization, like your local chamber of commerce. If you pay annual dues to belong to such an organization, you can deduct this expense.
Computers and Computer Hardware
Computers and related equipment can be expensive. Depending on the size of the purchase, you can write off the expense or claim it as an asset. Computer expenses exceeding $200 are usually classified as assets. If you claim your computer as an asset, you can write off a portion of the expense every year as depreciation.
For smaller purchases, you can claim the expense as a deductible cost. This has more immediate tax benefits than claiming the purchase as an asset. However, these are only general guidelines. You should speak with a tax advisor for specific advice regarding your expenses.
Office supplies can really add up. You can deduct office supplies to help compensate for your costs. This category includes paper, pens, and other day-to-day office expenses.
Business-related meals are tax deductible at 50%. In order to qualify, you must eat the meal away from home while you’re working or traveling for work. This also applies to meals that occur during an activity or outing. If you take a client to a ball game, you can’t write off the tickets, but you can deduct hotdogs and other refreshments. Make sure you keep accurate records of these expenses. These expenses often receive extra scrutiny from the IRS, so make sure you have all of your records in order to avoid complications.
Business-related travel is a common self employed tax deduction. Many small business owners travel frequently. Qualified travel deductions include a variety of expenses. Some common examples include:
- Train ticket
- Car rental
- Mileage between your home and the event
- Hotel accommodations
- Taxi or Uber fares
- Business meals
The travel deduction applies to temporary work assignments away from home. Indefinite work assignments that are expected to last over a year, are not considered travel expenses. Travel expenses incurred by traveling to a convention or conference are deductible as long as you can prove their relation to your business.
When you use your vehicle for business you are allowed to deduct the cost of operating that vehicle. You have several options to do this. You can account for each and every expense you had, or take the standard mileage deduction. The current standard mileage deduction is 58 cents per mile and accounts for the average cost of insurance, taxes, registration, maintenance, repairs, and fuel. If you choose the standard mileage rate, you cannot account for the actual expenses, you either get one of the other. Depending on your usage it may be more advantageous for you to account for the actual expenses. This is something you should discuss with your tax advisor
Get Tax Help Now
These self employed tax deductions can be a big help at tax time. However, they’re no substitute for the services of a professional tax advisor. The tax professional at Shared Economy Tax can help you identify your deductible expenses and maximize your tax savings. Get started today with a one-on-one strategy session with a certified tax pro. You can also sign up for our free newsletter for even more tax tips.