Tax Deductions for Freelancers That Are Frequently Overlooked
There are several tax deductions to be aware of whether you’re new to freelancing or have worked as a self-employed professional for several years. As a freelancer, you can deduct only certain expenses, while others are not deductible.
However, when tax season arrives and you have to file your tax return, doing it all alone can become an issue. Not all freelancers know how to do proper bookkeeping, which makes tax season preparation even more challenging. For freelancers, meticulous bookkeeping is crucial in order to save money on taxes.
One major problem that arises is when you miss out on tax deductions. Because you don’t understand how the process works, you probably have to pay extra than you need to.
Here, you are going to find out more about which tax deductions for freelancers are commonly overlooked.
What Is Considered to Be a Tax Deduction for Freelancers?
Freelancing means being self-employed and owning a business. The Internal Revenue Service recognizes that owning and operating a business can be costly. As a result, part of your expenses might be deducted as company expenses. Taxpayers can deduct both usual and essential expenses spent to manage a business, according to the IRS.
Such deductions are crucial to a freelancer’s business and should not be overlooked. A tax deduction reduces your net earnings, lowering the amount of tax you’ll have to pay.
How to Claim Tax Deductions?
The great majority of self-employed people are sole proprietors. Throughout tax season, sole proprietors file an additional Schedule C, Profit or Loss from Business, to include their self-employment income and most deductions on their personal tax return (Form 1040).
Some deductions, such as health insurance deductions, aren’t listed on Schedule C and must be claimed elsewhere on your tax return. Furthermore, some freelancer tax deductions, such as self-employment tax deductions, need the completion of a separate schedule.
Overlooked Tax Deductions for Freelancers
There are several tax deductions for freelancers, and it’s easy to overlook some of them and pay more taxes than you should. Spend the time to apply for all of the deductions you’re eligible for. In the text below, you will find out different types of deductions that you are eligible for by being a freelancer.
1. Working From Home Office
There are a few things to keep in mind when it comes to home office deductions. The first one is that you cannot deduct any home office expenses if you work for a company. But, if you are sole proprietor and work from home, you may be eligible for some tax breaks, such as office supplies.
To be eligible for home office deductions, you must meet two requirements.
Your home office must be used solely and on a regular basis, which implies that you can only use it for business purposes.
It must be your main workplace, which means it must be where you have meetings or complete all of your work. If you don’t utilize your home office on a regular basis or hold your meetings elsewhere, you may not be eligible for this type of deduction. You can only deduct home-related costs if you qualify. This can include, for example, interest on the mortgage, rent, insurance coverage, and utility services.
2. Educational and Training Expenses
If the expenses are for job education, you may be eligible to claim them on your tax return. Basically, your cash must be used for educational activities that maintain or increase your capacity to do your job.
You may, for example, work as a freelance business consultant. If you take a business program to improve your abilities, you may be eligible to deduct it from your taxes. Other expenses, such as textbooks, fees, equipment, and commuting, are also deductibles.
3. Health Insurance Deductible
Working for a larger company usually comes with a lot of perks, such as medical insurance and other benefits. When you’re self-employed, however, health insurance might be expensive. However, you may be eligible to claim some expenses from your taxes.
Premiums paid for medical insurance for yourself, your partner, dependents, and any kids under the age of 27 are tax deductible. To take advantage of this deduction, you must record a net profit. You can claim premiums as tax deductions on your Schedule A Form 1040 even if you don’t have health insurance.
4. Hiring Professional Services
If you hire other freelancers or companies, cost of that hire can also be a deductible. You can deduct the costs of hiring a lawyer or a bookkeeper to assist you with your finances. Professional and legal services are, according to the IRS, a regular and usual expense of running a business.
5. Travel Expenses
You may be eligible to claim travel costs if your work keeps you on the road. It may be possible to deduct your travel expenses if your trip is regular and essential, keeps you away from your home for longer than a normal day’s work, and requires you to stay overnight.
You can claim expenses such as flights, train tickets, cabs, luggage fees, accommodation fees, and up to 50% of the cost of your food.
Still Need Help?
The taxation system is complex, and it is always changing. Staying up to date on the newest changes and tracking down all available tax breaks for every expense is a full-time job. You are fortunate in that you have expert accountants to help you with this. It will make a huge difference if you have a professional on your side. Contact us today and let us guide you through the tax season.