3 Ways to Reduce Your Freelance Writing Taxes and Help Yourself

Taxes

by Thursday Bram

One of the reasons employers can afford to offer benefits like health insurance and retirement plans to their employees is because there are tax benefits available when they do so. They’ll have to spend money either way — the question is whether they spend that money on benefits for employees or on taxes. The same is true for freelancers.

Retirement

While the exact tax benefits of opening and funding a retirement account depends on the type you use, some can make a big difference in the taxes you owe this year. The Traditional IRA, for instance, allows you to deduct any money you deposit in the account. Since the current yearly limit for a Traditional IRA is $5,500, you will effectively eliminate the taxes you would have paid on $5,500 of your freelance income just by saving for your retirement.

Not all retirement accounts are created equal and there are benefits and drawbacks to each. In order to make sure that you find the right balance of benefits for your retirement and reduced taxes now, it’s worth talking to a financial professional. In many cases, a CPA can tell you about both reducing your tax burden and planning for your retirement.

Health Insurance

If you freelance full-time, you can deduct health insurance. Just how much you can deduct can be a complicated calculation, although you can deduct expenses for yourself, your spouse and your dependents, as long as you are not eligible to participate in a group health insurance plan through you or your spouse’s employer.

The total allowable deduction you can take for health insurance costs is calculated as follows: take your reported freelance income and subtract the 50 percent deduction for self-employment taxes and any retirement contributions you made to a SEP IRA, SIMPLE IRA or Keogh plan. The remained is your allowable deduction. The rules governing health insurance deductions are complex and if you’re planning to take them, having your tax preparer walk you through the paperwork is important.

Child Care

If you need child care while you’re working on freelance projects, you can usually qualify to deduct child care costs. Only costs for care during time you’re specifically working — no running to the grocery store — are eligible, but they can include daycare, babysitting or even a nanny.

If you’re freelancing part-time, the paperwork for these deductions is easier. If you have any questions, though, your tax preparer should be able to help you through the process.

Comments

  1. H. Needleman says:

    Are you sure about that $5,500 contribution limit on IRAs? Everything I’ve seen says that it’s $5,000 for 2009 and will remain the same in 2010.

    • @H. My paperwork says $5,000 for 2009 but that a $500 increase is scheduled in order to keep up with inflation. Sorry for the confusion — there are also different numbers if you’re closer to retirement (age 50 or over).

      • Retirement? What’s that? I think it’s a theory. :) With health care costs continuing to rise, I’m just going to change from writing to pushing daisies some day. No retirement for me.

  2. Great ways you have shared with us.This is really very helping for all freelancers how they can improve their writing skill.

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