Freelancers, don’t forget this year-end tax deductions
- 1 Freelancers, don’t forget this year-end tax deductions
- 1.1 1. Office tax deductions
- 1.2 2. Business materials and technology costs
- 1.3 3. Other legal and professional services
- 1.4 4. Mileage and vehicle cost
- 1.5 5. Advertising and marketing expenses
- 1.6 6. Insurance (including health insurance premium)
- 1.7 7. Material cost
- 1.8 8. Entertainment and gifts for customers
- 1.9 Before you ask
Freelancers, don’t forget this year-end tax deductions
Many freelancers think only a little about tax deductions. After all, if you operate out of your home, you keep your expenses low and have few expenses to offset your taxable income.
However, there are some important and easily overlooked tax deductions that freelancers, independent contractors, and sole proprietors can maximize before the year ends.
Here are eight tax deductions to know about — and how to take advantage of them.
1. Office tax deductions
It may be hard to believe, but millions of home businesses don’t take advantage of this important deduction. That’s crazy, as it has the potential to save you tons of money every year when you run your home-based business.
According to the SBA, 50% of all businesses are home-based, while 60% of all companies without employees (i.e. freelancers and sole proprietors) also work from home. surname. However, the IRS reports that small business owners often overlook this deduction.
What is the home office deduction? In a word, it allows you to deduct business expenses related to your office space, such as rent, mortgage, and utilities. There are two methods of calculating the deduction — the simplified method (introduced in 2014 to encourage more domestic businesses to take advantage of the deduction) and the conventional method.
If you choose the simplified option, you can claim $5 for every square foot of your home used for business (up to 300 square feet). Also, the conventional method requires you to keep track of your actual expenses like utility bills, mortgage, rent, any home repairs, home depreciation, etc and then calculate the amortization. Your deduction is based on the percentage of your home that is dedicated to business.
To claim the deduction, the IRS requires that you only use a certain area of your home for commercial or business purposes. That is an important difference. For example, if you use the kitchen table as your workspace for six hours a day, and then clean it up for a family meal, you can’t claim a deduction because you’re not using that space.” exclusive” as a home office.
However, if you have a separate room or space in your home that is clearly identified as an office and is used solely and “regularly” for business purposes, then go ahead, make a claim. there!
The IRS has more information about the home office tax deduction and how to choose the right option for your business.
Ah, the joys of working from home!
2. Business materials and technology costs
Any business, including freelancers and sole proprietors, can reduce the cost of purchasing business supplies and technology if they are used exclusively for business purposes. This includes furniture such as tables, chairs, computers, printers as well as your software licenses.
You can also deduct the cost of your printer paper, notebooks, etc. Additionally, if you drive to the store to make those purchases exclusively, you can deduct the mileage incurred.
If you need any office equipment or furniture, you may want to purchase those before the end of 2018 as you can use these purchases as a tax deduction this year.
You should perform an audit now on all your purchases in 2018 so you have the information you need before completing IRS Form 4562 and attaching it to your 1040 tax return.
3. Other legal and professional services
If you’ve used a third-party service to help you with legal matters like incorporation, bookkeeping, or accounting, you can usually deduct these costs — if they qualify as expenses. fees are “common and necessary” (that is, they are common and appropriate).
However, there are still exceptions. For example, some fees paid to professionals are not deductible. This may include fees paid to professionals who also provide you with personal tax advice.
Similarly, if you use the same tax preparer or bookkeeper to manage your personal and business finances, these costs can overlap and be difficult to account for next tax season. This is one of the reasons why it is important for freelancers and sole proprietors to keep their personal and business finances separate.
4. Mileage and vehicle cost
Do you use your car to visit customers, meet potential customers, or attend business related events?
If so, you can claim a mileage tax deduction for the number of kilometers driven in 2018 in your business or personal vehicle.
If you use your vehicle exclusively for business, you can also deduct its full operating costs, including oil changes, gas costs, tires, insurance, registration fees, etc
Use this time to ensure that you keep strict records of your vehicle use for business purposes. The IRS requires businesses to maintain a log of mileage traveled, dates of trips, start and end locations, business purposes, etc. Keep a notebook or spreadsheet, or even better, use Mobile app to automatically track and record your mileage as you go. QuickBooks Self-Employment, Hurdlr, Stride Tax, and MileIQ are a few options to make this easier.
5. Advertising and marketing expenses
Have you done any marketing for your business this year or made marketing-related purchases like social media monitoring tools or email marketing software? Even if it makes only a small difference in your budget, the costs will add up, but they are deductible.
Other deductions you can take include monthly website fees, PPC advertising like Google AdWords, the cost of printing your business cards, marketing automation software, as well as traditional print marketing.
Organize those expenses now and record them on your C-Statements for tax time.
6. Insurance (including health insurance premium)
Many clients require freelancers to purchase general or professional liability insurance (also called malpractice or error and omission insurance) to protect their interests. This can be a significant expense, in the range of $400-$1,000 depending on the coverage you decide on. But you can deduct the premiums you incur this year, so don’t overlook this important deductible.
Another important deduction for freelancers and sole proprietors in this category is your health care premiums. If you pay for your health care coverage outright using after-tax dollars (no government subsidies or employer share), you can write off your costs .
7. Material cost
If your business revolves around the production of goods, such as jewelry, handicrafts, and clothing, you can deduct the cost of materials under the cost of goods sold (COGS) category. This includes costs such as material and inventory costs.
COGS is a required part of your business tax return and can reduce your taxable income. Knowing your COGS can also help you determine how to price your products profitably and help you ensure a sustainable profit margin is maintained. It will also help you identify which product lines could be killing your bottom line.
Don’t forget that your client’s business dining and entertainment activities can be deductible, saving you money before taxes.
8. Entertainment and gifts for customers
If you can show that a meal or coffee with a customer was for a business purpose, you can deduct 50 percent of the cost. For example, the occasion should involve an active discussion about the business, such as plans for next year, new product releases, etc. Don’t forget you can also deduct the cost of going to and from the restaurant. !
This year has seen the rise of a common deduction in this category. If you have claimed the customer for entertainment, such as a ball game, in previous tax years, the new Tax and Jobs Act of 2017 eliminated the deduction for recreation, amusement or recreation activities. customer preferences such as sporting events.
Finally, if you buy gifts for customers during the holidays, you can deduct up to $25 per person per year. If you’re looking to maximize your tax deductions, you shouldn’t spend more than this amount per person.
Before you ask
The new tax law has brought sweeping changes and many businesses are still confused as to what it means for them. In addition to making sure you have all your deductions in a row, now is also a good time to make an appointment with a tax attorney or CPA (also tax deductible) so you can better understand the impact of the law. New taxes on your deductions and filing.
Disclaimer: Fundbox and its affiliates do not provide tax, legal or accounting advice. This document has been prepared for informational purposes only, is not intended to provide, and should not be relied upon as tax, legal or accounting advice. You should consult with tax, legal and accounting advisors before engaging in any transaction. Please refer to the IRS’s guide to Business Expenses Deduction or consult a tax professional for information on tax laws and how they apply to your business.