With great freedom comes great responsibility, especially when it comes to taxes. and freelancing. Today we're diving into the world of tax deductions that every sole proprietor should be aware of. These are the write offs you would use in a Schedule C to estimate the profit/loss of your business that’s filed with your individual/sole proprietor 1040 and Schedule SE form when doing your taxes. Remember to keep receipts, logs and records so that when tax time comes around, you can back it all up.
1. Home Office: You can potentially deduct a portion of your rent/mortgage expenses. Just make sure you're using the space exclusively for work-related activities to avoid any audit trouble. The IRS offers a standard deduction worksheet for home office use. It's calculated based on the square footage of your dedicated workspace at typically $5 per square foot up to 300 sq ft. 2. Vehicle Expenses. Gas, maintenance, insurance, and even a portion of your car payment can be eligible for deductions. Keep a detailed log of your mileage and expenses to prove your claims. Quickbooks has a great mileage tracker and currently has a special for 50% off for three months. 3. Tech supplies and Gear. Cameras, tools, laptops… the cost of these items might be deductible. Most deduct the entire cost in the year of purchase, but with big purchases that you can use for years (like vehicle or computer system) you can opt to claim an annual depreciation over time. 4. Phone and Data: If you use your phone for work, you should be writing off at least a portion of your monthly phone bill. 5. Health Insurance: Premiums can be a significant expense especially f you're self-employed and not eligible for coverage through an employer, you might be able to deduct these premiums. This deduction can also extend to other health-related expenses. So save those medical receipts. 6. Travel and Lodging: If you're traveling for work–attending conferences, meeting clients, or simply doing your gig away from home–travel expenses can be deducted. This includes airfare, lodging, meals, and even transportation, while at your destination, but also incidentals like luggage and travel accessories to parking fees and tolls. 7. Education and Skill Building: Investing in yourself is a smart move, and it might also be tax-smart. If you're taking courses, workshops, or any form of professional development related to your work, the costs should be written off. 8. Self-Employment Deduction: As a gig worker/freelancer, you're your own employer, which means you're on the hook for both the employee and employer portions of Social Security and Medicare taxes. You can deduct the employer portion, which can ease your tax burden. 9. Meals and Entertainment: If you're entertaining clients, networking with other professionals, or just grabbing a bite to eat during a work-related outing, a portion of those expenses might be deductible. Just ensure that these activities have a clear business purpose. 10. Retirement Contributions: Saving for the future is essential, even for gig workers. If you're contributing to a self-employed retirement plan, like a SEP IRA or a Solo 401(k), those contributions can be tax-deductible. Plus, you're building a safety net for your retirement years. 11. Marketing and Advertising: Whether you're running ads, printing flyers, or investing in a website, these marketing expenses are typically deductible. 12. Bad Debts: In the unfortunate event that a client or customer doesn't pay you for your services, you might be able to write off the unpaid amount as a bad debt. Just be sure to document your efforts to collect the payment. 13. Repairs and Maintenance: If your gig requires equipment or tools that need repairs or regular maintenance, these costs can often be deductible. 14. Insurance Premiums: If you're shelling out for insurance policies that directly relate to your gig–such as liability insurance or business-related coverage–these premiums can often be deductible.
15. Charitable Contributions: If you're a gig worker with a generous spirit, your charitable contributions can also have a tax benefit. Donations to qualifying charities can potentially be deducted, so keep track of your donations and the organizations you support. 16. Bank and Payment Processing Fees: Fees associated with payment processors, online banking, and other financial tools can be considered as business expenses, making them potentially deductible. 17. Child and Dependent Care Credits: Depending on your situation, you might be eligible for tax credits related to child and dependent care expenses. These credits can provide valuable relief, so be sure to explore them further. 18. Renting Workspace: If you're renting a dedicated workspace outside of your home, the rent you pay can be deductible. This could include a co-working space or any other location where you conduct your gig-related activities. 19. Legal and Professional Fees: Fees paid to accountants, lawyers, consultants, and other professionals can often be deductible.
20. Interest Expenses: If you're financing your gig-related equipment or other business expenses through loans or credit cards, the interest you pay on those debts should be deductible.
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For more information, it’s worth a read at the IRS site for self employed individuals.