“Our new Constitution is now established; everything seems to promise it will be durable, but, in this world, nothing is certain except death and taxes.” – Benjamin Franklin
This quote still holds true in these modern times, but luckily, the taxation system evolved for the better. If you want to save money on your taxes, the US tax system has a broad number of deductions one can claim. These deductions will be subtracted from your gross income to figure out the exact taxable amount you owe.
There is a sizable list of deductible business expenses that businesses and individuals can use, but what qualifies as an official expense?
Deductible business expenses are any expenses you incur while generating income for your business. These can be regular and necessary expenditures, as well as one-time fees for special services. Standard categories include operating expenses, travel, and entertainment expenses related to business, employee benefits, insurances, and more.
Best of all, almost anyone can claim these expenses if they qualify. From large multinational companies to small local businesses and even freelancers, no one is too big or too small to claim these expenses.
Can Freelancers Deduct Expenses on Their Taxes?
Freelance business is defined as a business started and managed by someone who works for themselves, usually through contract work. If you work on your own, you are a sole proprietor and are considered a legal business entity by the law.
Under this status, anything you do in support of your business may be tax-deductible.
Here are some quick examples:
- Website hosting costs
- Advertising costs
- Mileage on your car
- Hiring extra help
While these are only a few ideas, you will be surprised to see what else you can deduct from your taxes. To help, I wrote this complete list of deductible business expenses that any freelancer can use.
Tip: Make sure to bookmark this page for the next tax season!
What expenses qualify?
According to the IRS, an expense must be both ordinary and necessary.
An ordinary expense is defined as common practice in your industry. A necessary expense is one that supports the operation of your business.
Meanwhile, capital expenses are not included since they are considered assets of your new business.
What forms do you need to deduct expenses?
To apply these business deductions in your next tax filing, you will need to use standard IRS forms.
To start, make sure to work from the small business tax deductions worksheet that comes with your tax forms. The worksheet can significantly help you stay organized and will show you how to categorize expenses for small businesses.
Here some of the tax filing forms you will need.
Form 1099-MISC, commonly called a 1099, is one of the standard tax forms for all contract workers. A company will send you a 1099 to detail how much you earned during the last year. This data is also sent to the IRS, so do not attempt to lie about how much the company paid you.
Most companies only send a 1099 if you earned at least $600 in a calendar year. You do not have to attach the form to your tax filing, but you will need to report the dollar value on your forms.
If you do not have this form by January, request your 1099 from your clients immediately.
Also, make sure you keep all 1099s, even after you file, because you never know if the IRS will ask for more information. If you want to borrow money or get a mortgage as a contract worker, you will also need your 1099s to show proof of income.
For independent contractors and freelancers, Form 1040-ES is provided so you can pay estimated taxes for the current year. Since you are a contractor, your clients do not pay these taxes. You need to foot the bill, and the total taxable amount will be based on an estimate of your current income.
If you need help, you can refer to last year’s tax return to come up with an accurate estimate. If you need any help, Form 1040-ES comes with a worksheet to list down the differences between the current and previous year’s total income.
This is a MUST if you’re listing down deductions. Receipts are proof that you or your company spent money. They show how much you spent and what you spent it on.
It is important to keep all receipts before and after you file your taxes. If the IRS thinks you are not being honest about your expenses, they will want to see your receipts to back up your claims.
Keep reading below and check out the list of deductible business expenses to see what receipts you should save.
Should you hire a tax preparer?
If filing your taxes sounds daunting for you, you can hire a tax preparer to handle most of this. Tax preparers can help you prepare tax forms, review financial records, recommend eligible deductions, and ensure that all forms follow the mandated rules.
You can hire tax prep services in three ways.
Visiting their office
Tax preparation companies have offices across the US to prepare and file your taxes. If you are a freelancer, you can visit somewhere like H&R Block to get in-person help. Some services even help you stay organized during the year.
Hiring an online-based professional
If you want to do it yourself but need some help, online pros can answer questions and guide you. I don’t recommend doing this unless you are already quite comfortable doing your taxes, especially since most software companies have live chat options anyway.
Purchasing tax-filing software
When you need a more automated way to manage your expenses and forms, nothing beats modern tax software. These programs guide you through each step and will show you your estimated return in real-time. If you do not want to pay for high-end software, you can look into the IRS Free File Program.
To learn more about online based tax prep firms and compare costs, check out company ratings at SuperMoney – Taxes.
DIY Software Options
If you only have a few 1099s and no complex tax issues, consider DIY tax filing. Not only will you save money, but you will also learn more about the tax process, which will only make your life easier!
Here are some tax software options that I recommend:
- H&R Block Tax Software: H&R Block is one of the oldest and most reliable tax preparation companies. Their software is trusted by millions because it is easy to use and comes with live support. File Your Taxes with H&R Block.
- FreeTaxUSA: FreeTax USA’s tax preparation software is dependable and affordable. The company even has a plan that lets customers prepare their tax return totally free. Freelancers will enjoy FreeTax USA because their plans include all tax forms, even those for highly complex situations.
- Efile.com: Efile.com boasts a powerful system that helps you determine your total tax liability and identify business deductions. The company claims to be up to 50% less expensive than other software.
For more in-depth information, read my reviews on the best tax software for freelancers.
The Ultimate List of Deductible Business Expenses for Freelancers
After you have gathered your documents and chosen how you’ll file your taxes, it’s time to review your expenses. Remember, you need to show that these are qualified business expenses as we outlined above.
For more help on what qualifies, read my list of deductible business expenses for freelancers.
This tax consists of Medicare and Social Security taxes for self-employed individuals. Freelancers need to pay for this tax of 15.3% each year. Under the Small Business Jobs Act (Section 2042), this deduction is considered in calculating self-employment earnings. You need to complete Schedule C (Form 1040 or 1040-SR) to see how this is calculated and how to claim the deduction.
Apart from the self-employment tax, you can also deduct state taxes, foreign taxes, real estate tax for your home office, and even unemployment taxes.
If your startup costs are less than $50,000, you can apply for a $5,000 tax deduction. All proof must be dated before the business started. If your investment is more than $50,000, you are not eligible for the deduction.
Do you have an area of your home that can be counted as a home office? If you only use this place for work, it might qualify for the home office deduction. The general rule is you can claim a $5 deduction for every square foot taken by your business. Your tax preparer or tax software can help you calculate the exact value.
Office Equipment and Supplies
In either case, all office supplies and hardware related to your business can be considered as a deduction. You can deduct expendable supplies such as pens, clips, paper, and office equipment like printers and fax machines.
Internet and Phone Bills
You can include a portion of your phone and internet expenses as a deduction if you regularly use them for work. Since the video conferencing apps boom, check with your accountant or tax preparer if you can also include premium subscription plans to Zoom, Skype, or Google Meet.
Website Hosting and Purchased Software
If your business has a website or a Shopify store, you can factor this as a deductible business expense. These platforms are necessary to keep your business operating. Programs such as Microsoft Office, Adobe Creatives, tax preparation software, and other business-related programs can also be added to your list of deductible business expenses.
Advertising and Marketing
Don’t forget to add traditional and digital advertising to your list of deductions. This includes TV, print ads, and Facebook campaigns. You can also include t-shirts, business cards, and other marketing collateral you pass out for free.
Business Related Travel and Meal Expenses
If you travel to meet suppliers, attend conventions, or meet with new clients, anything incurred during that trip can be deducted as well. Meal expenses during that business trip can be included as well as meals with business colleagues as well. However, there are strict rules for this, so read these tips from the IRS.
Track your vehicle’s mileage for every business trip. Instead of keeping a logbook, you can add each mile to your tax software for easy tracking. You want to log business purpose, date and time, start point, and destination. The mileage rate for 2019 was $.58/mile, which can be very useful for long drives.
Parking and Tolls
Driving around for business still means parking your vehicle and paying tolls as well. To keep track of these costs, you can buy a toll pass and get a monthly activity log.
Repairs and Maintenance
If your business relies on vehicles, you can apply for a deduction for repairs, fuel, and maintenance.
There are two ways to claim this:
- Calculating mileage using Form 1040 Schedule
- Using Form 4562, where you can list down rates for depreciation, repair costs, and insurance fees
Check these two forms and see which ones can be most relevant to your business.
A wide range of insurance payments are tax-deductible, including:
- Health insurance
- Vehicle insurance
- Business liability insurance
You can also count items like malpractice insurance, fire insurance, and even workers’ compensation insurance.
Work-related education and certifications
With the competitive marketplace, you need to consistently educate yourself and get certifications to keep your business competitive. Luckily, the US government is willing to give you a tax deduction for this. Track your tuition and related expenses so you can claim them in tax season.
Remember that the courses must be related to the current business and not a new career.
Membership Dues and License Fees
Joining fees for industry organizations, state boards, and other business-related groups can also qualify as deductions. Specialty groups like country clubs or travel clubs are not allowed since they are not deemed necessary to build a business.
Have you set up an IRA, SEP, or other self-employed retirement plans? Your broker should send your tax forms each year that show your total contribution amount.
If you have any loans for your business, you can also claim a deduction for the interest paid. While this qualifies for business loans, you should speak to a tax professional if you want to use a personal loan for business.
You can’t run every aspect of your business, so you might need to hire contractors to help. If you are paying a graphic designer, content manager, virtual assistant, or any other freelancer, you can apply the amount paid as a deduction too.
Suppose you have appointments with an accountant, lawyer, or business consultant. Since these services are necessary expenses, you could include their fees as a deduction for your tax returns.
If your products or gear take too much space at your home office, you might rent out a storage unit for your items. The monthly charges can be considered for a deduction.
Your assets will slowly lose value, meaning your business loses some of its worth. As your gear depreciates, you can write off the loss of value. There are various methods to calculate depreciation for your tax returns.
You can use:
- The straight-line basis
- Declining balance method
- Sum-of-the-year’s digits method
- The double-declining method
Check with your accountant or tax preparer which ones will suit your business.
Starting a business may mean doing some research on your market and your competitors. This includes buying the latest consumer data, surveys, and localized data. The IRS includes these as deductible business expenses.
Remember that anything used to calculate the cost of goods, investment expenses, and expenses for personal use or not related to your current business is considered a non-deductible business expense.
For certain items in the list where business and personal might cross over, it is important that you note how much percentage business and personal take up for that item.
For example: Let’s say you take a 3-day business-related trip but use 1 day for personal use. In this case, 30% of the trip was for personal use and should not be included in your deduction.
This list of deductible business expenses is lengthy and should excite freelancers out there who may want to trim down their business taxes. Tax write-offs can mean more for your business and can use it to move the business further.
Just make sure all your supporting documents are iron clad and organized, so when the IRS calls, you will be ready to answer them.
I have been a freelance digital marketer since 2014, specializing in content marketing and editing. My interest in finance and frugal living began while living overseas, inspiring me to start this blog. When I am not helping clients generate more leads or market their services, I explore the world, listen to podcasts, and dream big.