The ultimate list of freelancer tax deductions
Nothing eases the pain of tax time like a long list of deductions. Before you file your 2014 return, check below to make sure you’re claiming every deductible available to your freelance business, and keep more of that hard-earned money in your pocket. These expenses can all be deducted on Schedule C, Form 1040, unless otherwise noted.
Home Office
You need to meet three requirements to qualify for the home office deduction: exclusivity, regularity, and precedence.
Exclusivity: you need to use your office solely for business (a kitchen table turned desk won’t work).
Regularity: Your home office must be used on a regular basis.
Precedence: You need to spend the most time, and conduct the most important business activities, out of your home office.
You can claim the home office deduction using the standard or simplified method. Using the latter, you can create a standardized deduction of $5 per square foot of your home that’s used for business up to a maximum of 300 square feet. If you calculate your deduction using the standard method, you’ll also need to fill out Form 8829.
Domain and Web Hosting
Your website is your storefront and business card all rolled into one, which means hosting and domain expenses are fully tax deductible as ‘other expenses’.
Telephone Internet Expenses
The costs of your internet connection and phone bill are deductible as utility expenses. If you use these technologies and services for both personal and business reasons, you can only deduct a percentage of these costs based on how much you used your phone and internet for business purposes
Apps and Online Tools
The cost of any apps and online tools you use to run your business, such as subscriptions to Adobe Creative Cloud, Evernote, or Dropbox can be claimed as business expenses.
Advertising
A steady stream of work is the lifeblood of a freelance business. Advertising costs, such as banner ads, business cards, and printed promo materials are deductible as business expenses.
Office Supplies
Your office essentials (printer ink, paper, staples, etc.) are deductible business expenses.
Business Meals
You can claim 50% of business meal expenses. Keep itemized receipts for all meal expenses. These can be digital copies that are uploaded to an app like Expensify or Bench, or a hard copy. Record the name of the person you were with on the back of the receipt or in the notes section of the app.
Insurance
Business insurance is a deductible expense. Renter’s or homeowner’s insurance for your home office can be claimed as a part of your home office deduction. Learn about which insurance policy is right for your business here.
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Auto Expenses
You can deduct costs related to using your vehicle for business purposes. Apps such as Shoeboxed and MileIQ make it easy to track mileage.
Medical Care Expenses
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.
Claim medical care costs on Schedule A (Form 1040).
Education
The cost of education that adds value to your business or improves your business skills is fully deductible. Education that isn’t related to your business is not a legitimate business expense.
Business Interest and Bank Fees
If you’ve borrowed money for your freelance business, you can deduct the interest incurred on this debt. You can also deduct the cost of bank fees and charges you paid on your business bank accounts. If a loan is part business and part personal, you’ll need to split the interest into business and personal.
Legal and Professional Fees
You can deduct legal and professional fees that are directly related to running your business, such as the cost of hiring an accountant or bookkeeper.
Retirement Contributions
The income you contribute to an Individual Retirement Account (IRA) reduces your taxable income for the tax year. That said, the amount you contribute to an IRA for the year can’t exceed your total earned income for the year, or the annual maximum amount (whichever is less). The limit on contributions for 2014 and 2015 is $5,500.
You can claim these contributions on Form 1040.
Tax filing is just one of the many important things freelancers deal with, but taking advantage of relevant deductions can help to reduce your tax bill this year.
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