It’s that time of year when people in the U.S. are scurrying to get their taxes done. If you’re a first-time freelancer, it’s likely that you’re just starting to learn about all the tax deductions available to you.
Some tax deductions are pretty obvious, like business expenses. Other’s aren’t as obvious, like car mileage. Here are some tax deductions freelancers shouldn’t forget about come April 15th.
(P.S. As always, you may want to consider getting an accountant to help you with tax deductions for your freelance business. There’s only so much you can do on your own and tax laws change every year.)
Tax Deductions Freelancers Shouldn’t Forget About
Did you get a new Macbook this year because your old one finally died? Did you get podcasting gear like a microphone? How about an iPhone so you could get on Periscope and market yourself?
Any equipment that you use solely for your business is tax deductible. You’re allowed to deduct up to $500,000 worth of equipment in the year that you purchase it.
Make sure you keep a running list of all the equipment you’ve bought for your business in a given tax year. You can do this with accounting software or with a simple spreadsheet.
Health Insurance Premiums
This is one of those tax deductions that make you happy to be a freelancer. If you’re self-employed you can deduct 100% of health insurance costs for you and your family. The same applies for dental and long-term care insurance.
You qualify for this deduction so long as you made a profit and so long as you have no other form of health insurance. This means that you won’t get the deduction if you are eligible for health insurance either through your own employer or through your spouse’s employer. However, if you have no option but to pay for your own insurance then you can enjoy the deduction.
Business Bad Debt
Did a client disappear and stiff you on payment? You may be able to deduct it from your taxes under what’s considered a business bad debt.
According to the IRS, if you’ve traded a good or service for which you are still owed payment, and you still haven’t received it after a reasonable amount of time, then it’s considered a bad debt and you have the option to deduct it from your taxes.
You must keep your books in order for this to work for you. Meaning you must have your accounts receivable in check to prove that you sent an invoice and were never paid. This also helps determine how much can be deducted.
This is another one of those deductions that make you feel happy to be a freelancer. If you have a dedicated space in your home where you do your work, you can take a home office deduction for a percentage of home expenses. This includes your mortgage, utilities and property taxes.
Your other option is to take a Simplified Home Office Deduction at $1500. Either way, if you work from home you may be able to get a deduction for it.
Payment Processing Fees
You know those pesky fees that take a chunk of out payments that are made to you? Yeah, you can deduct those from your taxes.
And here’s another one when it comes to fees, if you have a business credit card you can deduct any annual fees or late fees that are imposed on you by the credit card company.
Freelancing may come with some headaches when it comes to managing money, but it does come with some sweet perks come tax time. Make sure you don’t forget about these deductions as your business progresses.