In the first and second parts of this series, we talked about the taxes you must pay and the forms you must use as a freelancer. In this part, we’ll talk about how you can subtract the costs of certain allowable items (deductions) from your income, getting you a lower taxable income rate.
Let’s go over the top five tax deductions for freelancers.
1. Home Office
As a freelancer, you might work from home. If you have a dedicated work space, you may be able to deduct the cost of your home office.
For your home office to qualify for the deduction, there are two requirements: the space must be used regularly and exclusively for your business, and it must be your principal place of business. So no, you can’t deduct your bedroom just because you work in bed sometimes. As for the second requirement, it’s fine if that’s not the only place you do work. You might work at the coffee shop down the street sometimes, but if you do most of your most substantial work from your dedicated workspace at home, that still qualifies as a home office.
You can deduct your health insurance if you pay for it yourself.
This deduction applies to medical, dental or long-term care insurance premiums, and covers not just your insurance, but insurance for your spouse and dependents. Make sure the insurance is under your name or your business’ name.
Thus, you can deduct a meal as business entertainment if the main purpose of the meal was to discuss business, or if the meal was directly after or before the discussion of business. For a meal to qualify as a travel-related expense, the stay must have been at least overnight. Calling a client while you’re at the drive-through at McDonald’s does not fit those parameters.
Also, not to kill those dreams of deducting twelve-course tasting menus, but you cannot deduct a meal if it is extravagant.
You can deduct legal and professional fees, such as those for tax preparation.
This falls under business expenses, so long as the expenses are ordinary (common) and necessary to operate your business.
5. Your Laptop
As a freelancer, your laptop may qualify as a business expense.
Business expenses are those that are accepted and appropriate in your line of trade. For example, if you’re a designer or a writer, having a laptop is common among designers and writers, and definitely helpful for your designing or writing. A laptop is something you will probably need to capitalize as property you will use for more than a year. In other words, you will need to deduct a portion of the laptop’s cost, as it depreciates each year.