Wait, what? But April 15th just passed, you’re saying. Can’t I please get a break from all this tax talk?
Sadly, no. While they’re no fun to think about, if you’re a freelance writer, tax deductions are a part of your life all year round. And trust me, you want to think about tax deductions because they’re going to save you money in the long run.
What Can I Deduct?
Almost anything you buy to use in your business can be deducted on your taxes. In the past, respectable tax payers have been able to convince the IRS that cat food, beer, and even breast implants are viable tax deductions. While you’re probably not going to convince the IRS that your new DDD’s are integral to your freelance writing business, there are plenty of deductions you can safely take:
(Just because I said that doesn’t mean you shouldn’t run all this by an accountant or tax pro before filing taxes. Please don’t substitute this blog post for advice from a tax professional.)
Office Supplies – It’s fairly easy to be a “green” freelance writer, but until the world goes entirely paperless we’ll always need supplies like printer ink and pens. Save your receipts when you jet out to the office supply store.
PayPal Fees – Do you grimace in pain every time you see PayPal bite a chunk out of your invoice? Never fear. You can get that approximately 2.9%+.30 back at tax time by writing it off as a bank fee.
Business Phone – This deduction is easy to take if you maintain a separate phone line for your business, but really, in the age of the smart phone, how many of us do that? Just a couple of weeks ago the IRS removed cell phones from their “listed property” category. While tax pros seem to agree that this is good news, the IRS hasn’t yet issued any guidance on how sole-proprietors like us should treat cell phones that we use for both business and personal purposes on our 2010 taxes. Until they do, stay tuned!
Professional Services – Do you use an accountant at the end of the year? A bookkeeper? Maybe a business coach? You used those services to help your business and you can write them off.
Professional Memberships and Networking Events – I’ve been to networking events that set me back hundreds of dollars. Somehow the fact that I’ll be able to write off those fees at the end of the year has helped me more easily swallow forking over that cash.
Mileage – If you drive your personal auto to meet your clients, note your beginning and ending mileage in a mileage log. At the end of the year, you can deduct .50/mile. Your bus, train or taxi fare is deductible, too.
Contractors – The amount you pay anybody you hire to help you work in your business is tax deductible. Just be sure to send your contractors a 1099 by the end of January every year.
Web Hosting – Though there is a great deal of debate about how to categorize web hosting on your taxes, it most certainly is a deductible business expense.
Advertising – Did you take out an ad or print up some brochures? Deduct it!
Home Office –The home office deduction can be one of the larger deductions a freelancer like us takes, but it can also trip you up if you’re not careful. Long story short, to take a home office deduction you must use a precisely delineated portion of your home (i.e. a room, a shed, a garage) as your office and for no other purpose. From there, you can deduct the amount that you pay in rent, mortgage, etc. for the percentage of your home used for business. In other words, if you use 100 square feet of your 1,000 square foot house as an office, then you can deduct 10% of your rent or mortgage as part of your home office deduction. For homeowners, this can start to get tricky when it comes to mortgage interest, and don’t even think about selling your home unless you want a huge tax headache. The home office deduction is one of those tax time quandaries that reminds us all why accountants are so invaluable.
Utilities – These go hand in hand with the home office deduction. If you deduct 10% of your rent or mortgage as your home office deduction, you can also deduct 10% of your utility bills. In my case, these amounts are usually under $20 per month, but they add up over the year.
Nothing Personal, It’s Just Business
Keep in mind when it comes to tax deductions that you can only deduct the portion of anything – your utilities, your PayPal fees, etc. – that you use for business. The IRS tends to frown upon sloppy bookkeeping and letting your personal finances bleed all over your Schedule C business taxes. Because of that, next week I’ll provide answers to the age old question, “How on earth do I keep track of all these tax deductions anyway?”
There are thousands of tax deductions out there. As a freelance writer, do you regularly take any tax deductions that didn’t make this list? Share with your fellow writers so we can all keep Uncle Sam out of our back pockets.
Jennifer Escalona is not a tax professional and this post should not be taken as tax advice. She’s just a freelance writer who has battled the tax laws and won.
A couple of points. I’m no CPA, but have written for a couple of CPA pubs:
Home office and utilities require that one uses a space “exclusively for business,” so a table in the kitchen used for meals, etc., doesn’t qualify. Home office deductions also make the return more likely to be audited.
On Web hosting, I would include it under professional dues and subscriptions (a Quickbooks category). I don’t have Web hosting, but I use this for other online subscriptions.
Jennifer Escalona says
It’s always good to point out again that the home office deduction can be a major obstacle. Just keep the guest bed and the art projects out of the home office and you’re all set. (Unless, as you said, Phil, the IRS takes a special shine to you return because of the Home Office Deduction.)
There’s more info about the current state of home office deductions here if anyone is interested: http://righttaxesnow.com/taxes/home-office-tax-deduction-simplification-and-improvement-act-of-2009/
I did some deep research fro an article at about.com on the home office, including calling the IRS (and my hubby is an acct who has done small biz returns for years). They told me in no uncertain terms that you are not more likely to be audited for home office. Well, so, do you believe them? I dunno.
In addition, they wouldn’t say that the delineation did NOT have to be a separate room, but I’ve seen that again and again in other articles– that they have eased the “wall” requirement.
Another thing: in addition to mileage, think “travel” in general…
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