What are some freelance tax deductions that aren’t obvious?
—Taxes Are Taxing
Taxes are due next week, but I hope there’s still time for you to take my biggest piece of advice: Don’t do your taxes yourself. Instead, work with a CPA. In 2014, I thought I could do my freelance taxes myself, and ended up requesting a tax extension so I could work with a CPA and make sure my taxes—and my deductions—were correct.
In fact, getting a good CPA on board can benefit you far beyond tax season. As CPA Jonathan Medows of CPAForFreelancers.com explains: “It’s not just about taxes. It’s about year-round planning, and it’s about tweaking your financial perspective. Where you are now isn’t where you want to be in three years, and a CPA can help with your financial and tax planning as you grow.”
On to the topic of freelancer tax deductions! The standard disclaimer applies: I am not a CPA, and I am not qualified to give tax advice. I can, however, tell you about some deductions you might want to discuss with your CPA:
Health insurance: Thanks to the Affordable Care Act, we all have the opportunity to get health insurance—and our health insurance premiums might even be tax deductible. As Freelancers Union explains:
As a self-employed individual, if you pay for your own (and your spouse’s) health insurance, you can deduct all of your health, dental, and long-term care insurance premiums. However, you can’t deduct your insurance costs if you happen to be eligible for health coverage through your spouse’s employer.
The IRS notes that you need to have a net profit to be able to claim this deduction, so talk to your CPA about your profit, your premiums, and your eligibility.
Desk, computer, and home-office gear: A lot of freelancers know that they can deduct home office costs, but what isn’t always obvious is that you can only deduct the part of your home office that is used strictly for work. That means a lot of us who use our laptops for writing and Netflix might not be able to take this deduction. Talk to your CPA to see if the home office deduction applies to you.
Depreciation: We’re all going to have to replace our laptops every few years, and if your laptop is your primary work tool, you might be able to count its depreciation as a tax deduction. Here’s Freelancers Union again:
Most freelancers get to depreciate their equipment over five years (computers, camera equipment, fax machines, etc.) or seven years, depending on the life of the item.
It’s the one time that planned obsolescence works in your favor.
Internet/phone bills: This is a new deduction that I learned about this year. Since I use a percentage of my Internet and smartphone service for work, I am able to deduct a percentage of my Internet/smartphone bill from my taxes. I wish I had known about that deduction last year so I could have saved a little money on my tax bill!
PayPal fees: If you get paid via PayPal, you’ve probably noticed that PayPal takes a little cut out of each transaction. Those cuts are tax deductible, so tally up your total PayPal fees for your CPA, who will know how to incorporate them into your tax preparation.
Research materials: When I wrote “The 5 Best Coffee Shops for Freelancers: Seattle Edition,” I kept track of every cup of coffee I consumed while researching the piece. Those cups of joe turned into tax deductions. Many of your research costs—including the movie tickets you buy before reviewing Avengers: Age of Ultron, or the cost of an interview-recording tool like Call Recorder for Skype—count as tax deductions, and those small expenses add up quickly.
Travel: If you travel to research a piece or interview a source, keep track of the mileage, the airplane tickets, and the subway costs. Add them to the tax deduction list you present to your CPA. You can often include a percentage of your meal costs, so keep those receipts as well.
Professional development/educational expenses: If you go to an industry conference, take a class, or participate in other professional development activities, the costs are likely to be tax deductible. These are often where freelancers get huge tax deductions, since conferences are not cheap! To quote the IRS directly:
If you are self-employed, you must report the cost of your qualifying work-related education on the appropriate form used to report your business income and expenses (generally, Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040)). If your education expenses include expenses for a car or truck, travel, or meals, report those expenses the same way you report other business expenses for those items.
Tell your CPA about any conferences or classes you attended, and make a list of the related costs, including admission fees, travel, meals, and the cost of buying WiFi on the plane.
Online presence: If you pay for web hosting, HootSuite Pro, LinkedIn Premium, MailChimp, or any of the other services that help you maintain an online presence, these costs are often tax-deductible.
Tax services: Yes, the cost of your tax preparation is probably tax deductible! That’s one more reason to work with a CPA.
If you take any piece of freelance advice I’ve ever given, I hope that you take the advice to find a good CPA and let this person help you find appropriate tax deductions—both the obvious ones and the ones that are a little more obscure.