20 Tax Deductions for Freelancers
December 5, 2007 by Deb Ng
Filed under Freelance Writing
I hope you’re saving your receipts. If you’re a freelance writer, many of your expenses are tax deductible. In some cases, you’ll need to provide proof. For instance, if you’re writing off an office with all the bells and whistles, you may have to be able to prove that office is only being used for you and your work and not for kids to do homework or watch television or do art projects. What are some of the things freelancers can deduct? Glad you asked!
20 Tax Deductions for Freelancers
- Magazine subscriptions – I deduct my subscription to Writer’s Digest, Wired and others.
- Books -You can deduct books having to do with writing or having to do with a topic you’re writing about. Anything considered research material is deductible.
- Computer
- Printer
- Dedicated business telephone line
- Your Internet connection
- Office furniture
- Paper
- Pens
- Laptop carrier
- Business trip expenses: Cell phone bills, planes, restaurants, hotels, mileage
- Meals or drinks with colleagues or interview subjects
- Gas mileage if you’re going somewhere for your writing
- Postage and mailing supplies
- Membership for writing and other professional organizations
- Health care
- Advertising: brochures, business cards, flyers, etc.
- Bank fees
- Web domain registrations and hosting fees
- Computer software and hardware
Now, before you run out and buy a whole bunch of stuff just because you can write it off, let me give you this one bit of advice. There is no better way to call attention to yourself with the IRS than to all of a sudden hand them a list of deductions. In fact, if you want to stay under the radar to avoid and audit, the last thing you want to do is deduct a whole bunch of items. That’s not to say you shouldn’t deduct all of your expenses. Just be sure to keep receipts and documentation handy for all. You never know when you’ll need it.
Good advice, Deb.
Question… I have been saving just over half of everything I’ve made from writing. Do you think that’s enough to cover California and/or Federal income taxes?
Matt, federal taxes are generally between 25 and 30 percent of your income, while state taxes are generally about 10 percent. You’re over-saving, which is actually good because now you’ll get a nice “refund” after you’ve finished filing.
Deb, you’d be surprised what things encourage the IRS to focus on a taxpayer. The number of items you submit as deductions is not as important as whether or not you have proof that those items are legitimate deductions. In addition to keeping your books properly, save your receipts and statements fanatically. Getting audited by the IRS should be no major concern or hassle then, no matter how many items you deduct.
Don’t not deduct just because the IRS audits. Those deductions are there for taxpayers like you; but, you only reap the benefits if you use them. I can’t think of many fields where the option to deduct is more applicable than freelance writing.
I’m lucky enough to have a mother who’s a tax professional. She does my taxes for me every year, and I deduct everything–and I do mean everything–that’s relevant, from computer supplies to the specific items I use in my subfield. A potential audit has never been an issue since I have all of my proof safely stored and ready to produce if needed.
Oooh, taxes are making me nervous. This will be my first full year doing this, and didn’t have to pay quarterly because of last year’s taxes. At least we have one tax payer in the family. Starting out in a cold sweat . . .
Thanks for the great advice. I’m always wondering what a freelancer can and can’t deduct.
Does a freelancer have to have a business in order to have these deductions for freelancing? Would you actually have to have a business license or some such proof that you’re actually legitimately working from home? Thanks!
Deduction time is also a time to consider form of business. Mine has been incorporated for 16 years and this structure entitles more liberal health deductions (if addressed properly in by-laws); an LLC may be appropriate for some others. That was not available in Ill when I incorporated, so I don’t know much about it.
Just something some may want to consider.
What about fees paid to Pay Pal? I read somewhere that they were deductible as credit card acceptance fees.Anyone with a business Paypal account has to pay these fees so…
I can’t recommend strongly enough talking to a good accountant and a lawyer about your own situation. For example, my lawyer offered different options for deducting my computer equipment.
Other things I was told may be tax deductible are holiday gifts you give editors. And you must be very careful with travel expenses, especially if you are using your family vacation as article fodder.
Speaking of bad deductions…I had a teacher once who got a speeding ticket driving to school. Said he planned to deduct it as a work-related expense. A few people with successful financial-planning companies have told me that not only is this an unauthorized deduction, but it’s the kind that can result in a really nasty audit. The IRS’s attitude is this: if you’re cheating on this item, what else have you deducted in the past that should be disallowed?
Though I agree that most may want to consult an accountant, it’s good to know enough to question suggestions they have — H&R Block was hit by the IRS two years ago for errors in its own tax return.
Thanks Chandra, I had a feeling.
I freelance as a hobby mostly and to get a bit of extra cash, so I probably won’t be using many of the deductions that I could be. But I will be talking to my tax guy about deducting internet service since I can’t get cable or DSL at my home, and I really don’t want to pay for satellite.
I’m a fairly new reader as I’m new to freelancing — and, Deb, you do a great job so I’m glad I found this site!
I believe (but am not certain) that one can also deduct utilities (water, elec, heating oil/gas) on a office/overall area percentage basis. If your office/designated work space is, say, 10% of your total house/apmt area, you can deduct 10% of all utility expenses.
anjeeta>> yes, PayPal fees could be deducted.
I’m a bit confused, Deb. Last time we had a tax discussion, didn’t your guest tax expert say computers are not deductible?
Mariella,
My understand and I am sure Deb will correct me if I am wrong..
is that as long as that computer is used for your business it can be deducted; at least the initial purchase. I do not think this is an ‘ongoing’ deduction though; a one time deal.
I purchased a laptop for my business and while I will be doing my own taxes; I will be reading up on this information so I do it correctly.
Thanks Deb for the list. I always do better with a list; keeps my brain cells in focus!
I’d also like to add that I’m currently reading “Writer’s Digest Handbook of Making Money Freelance Writing,” a compilation of articles written by various editors of Writer’s Digest, and it contains very helpful and complete info on freelancers’ tax deductions, along with tons of other invaluable stuff.
On the computer question: If it’s used for business, there is a deduction, but you may have to depreciate it over a few years. For a corporation like mine, you can write off something like $20,000 (not sure of actual figure) of capital expenditures in a year. Not sure if there are such limitations for sole proprietors (those who use schedule C). But even if you can write it off for tax purposes, it should be depreciated over time (typically three years) for bookkeeping so that one better matches expenses and income.
I know many writers don’t like numbers, but a couple of basic accounting books can be an invaluable reference, though they may or may not have tax info. IRS site is also helpful if you can cut through a lot of the wordiness.
This is what my accountant told me. If you have a set home office with a computer that is ONLY used for work and nothing else (no chatting to friends while working, no emailing family, etc.) you can deduct the depreciation of that computer, the electricity it uses, and that percentage of your internet bill. However, my house is too small for a home office, I work from my bedroom or living room depending on which computer I need to use. For that reason, she told me it would be next to impossible to deduct much of anything, so I don’t bother.
I’ll say this, it’s handy being married to an accountant. I also learned a great deal from my mom who just retired from her job as an instructional designer. She wrote courses for accountants.
I’m no expert, but I believe Ann is right. If your computer is being used for work and only work it’s a write off.
Also, regarding the audit thing – don’t NOT use deductions because you’re afraid of an audit, but audits do catch the eye of the IRS over returns without a lot of deductions. The bottom line is to be fair and keep all receipts and paperwork.
Great information! I bought my laptop for the sole purpose of work. While I may “chat” on it via other sites, like this, they are work related.
What I am about to say by no means is a way to get around this; but …. How are they going to know? If you are computer savvy and know your way around a hard drive, then their wouldn’t be anything showing up except for work files/correspondences. I just don’t get how they would ‘audit’ how you use your pc. Let me rephrase; I know how it can be done; but does the IRS really do that? lol I am afraid of them, so I do the legal stuff…rofl
Deb,
You are fabulous! Thanks for the business savvy information. It’s truly enlightening. I’m currently finishing up college and have decided freelance is the direction I’m going to take.
Your articles have definitely been a helpful guide in the direction I’m moving towards. Thanks for your time and knowledge.
Sincerely,
Kat
PS. Please enjoy the coffee! It came from my first freelance paycheck!
On the computer issue, I have deducted a couple of them. (It’s actually depreciation, but you can do it all in one year – even if you’re just a sole proprietor – just a freelancing individual.) The problem would be if you’re deducting a new computer every year. Or a game system, to relax between articles. Or a 60 inch plasma TV, to keep up with the news. It’s really not that tricky, you just need to be honest and realistic about what is needed for your work.
And be careful with deducting any home office expenses. Make sure you have professional guidance on that because it’s a tricky area and potential audit trigger.
A couple of items I bought in 2006
(computer, printer, softaware) but never claimed them on my taxes last year. Can I claim them for 2007 as long as I have the receipts?
Can I also claim deductions on fees to license and register my business? Thanks!
I think this would be a great time to turn my wishes into high gear and make my freelancing into a legitimate business, whether or not it is required for tax deductions.
What are the best steps to take there? I’m fairly fresh here, Deb, and you may have already covered this, but what steps are necessary to start up an official freelance biz?