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Freelancer Tax Deductions
Tax deductions are not just a way to survive tax season; they're an essential tool to optimize your business finances. From basic home office expenses to advanced plays like professional development, these deductions put money back where it belongs—in your pocket.
Solopreneur Tax Deductions
Back in the 9-to-5 grind, you had perks like corporate cards, office supplies, travel allowance, and even free coffee.But now you are the CEO (yay!) and one of the many perks to having your own business are write-offs. L
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A write-off is an expense that lowers your taxable income. Less income means you owe Uncle Sam less in taxes. And no, you don't need to be an official LLC or anything fancy like that. Anyone that earned freelance income this year qualifies to tax write-offs. Every dollar you save on taxes is a dollar you can reinvest in your business. Maybe you'll hire a virtual assistant or finally get that premium software you've been eyeing. Your cash flow will thank you.
The IRS says you can write-off any expenses that are "ordinary" and "necessary" for your line of work.
For example: You will make $100k but also spend around $10k on software, travel and office equipment to get tour business off the ground. Without write-offs, you'd owe around $28,140 in taxes. Yikes! Claim $10k in write-offs, and your tax bill drops to $24,227. That’s $3,913 back in your pocket!
Big corporations have entire departments dedicated to optimizing taxes. As a solopreneur, you're a one-person show. But guess what? Tax deductions are your secret weapon to level the playing field. They give you a fighting chance to compete with the big guns. With a bit of organization and some basic know-how, you'll be a pro in no time. With apps like ruby money that automatically scan for write-offs as you spend, its easy to make sure you capture all the deductions you are eligible for.
Must-Have Deductions: The Essentials
Admin Costs
These are all the unsexy costs that are required to keep your solo business running. Think business registration fees, insurance and payment processing.
- Business Insurance
- Health insurance
- LLC Registration fees & business licenses
- Payment processing fees
- Lawyer, CPA
Travel & Transportation
Going to a conference? or to pitch a client? Flights, Ubers and even that mid-air wifi are write-offs. Any travel costs to and from a business meeting are write-offs including meals. A business trip is typically classified as 100 miles from your home.
- Airfare, hotels, Airbnb
- Car rentals, parking, tolls, rides hare, and public transportation
- Travel meals and coffee- as long as you are 100 miles from your hom.
- A portion of your car payment, gas, insurance
Professional & Business development
Investing in your professional development is a wise choice that can enhance your skills and help grow your business. There are various ways to do this, such as attending workshops, taking online courses, or obtaining certifications in your field. Even that subscription to Wired counts.
- Photography & Headshots
- Promotions, Sponsorships & Ads
- Conferences
- Contractors
- Online courses & certifications
- Coaching & Mastermind groups
- Slack memberships
- Online + print media subscriptions
- Gifts for Clients - Sending a little thank-you gift to your clients? Deductible, up to $25 per person.
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Home Office:
Do you work from home? Awesome, so do I! The IRS lets you write off a portion of your rent, mortgage, utilities, even house cleaning. Just make sure your home office is solely for business. Treat yourself to some snazzy stationery; Uncle Sam's got your back.
Example 1: Renting a One-Bedroom Apartment
Let's say you're renting a one-bedroom apartment, and you've dedicated the living room as your home office. The total rent is $1,200 a month, and your living room takes up about 25% of the total square footage. You can deduct 25% of your rent, which equals $300 a month or $3,600 a year. Not bad, huh?
Example 2: Utility Bills
If your electricity bill is $100 a month and your home office occupies 20% of your home, you can deduct $20 each month from your utility bill. That's $240 a year. Cha-ching!
Example 3: The Ergonomic Chair
Say you splurge on an ergonomic chair that costs $300. Keep the receipt and write off the entire amount. Your back and your wallet will thank you.
Tech & Tools
From Macbooks to Canva subscriptions tech equipment and software are a 100% deductible.
- Laptops, monitors, printers, ring lights
Website design and hosting - Design, CRM and project management tools
- Writing, scheduling, CHAT CPT software
- Book-keeping, invoicing, tax software
Retirement Contributions
You can deduct any contributions you make to a self-employed retirement account on your tax return. You can contribute $6,000 into a traditional IRA and 20% of your net income up to $64,000 for tax year 2023 into a SEP-IRA. The best part about this deduction is that you don't have to spend any money to get it. You can simply move your income over to a retirement account, allow it to grow tax-free until you need it.
How To Keep Track: Make It Easy On Yourself
Tax deductions are your business's best friend. Seriously, don't ignore them. Tracking all these deductions requires some organization. Stay organized using a spreadsheet or a book keeping tool like Ruby Money. They're the difference between working hard and working smart.
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