Tax Deductions and Checklists for Freelancers
Freelancers must report income to the IRS each year. For some, income will be reported on a 1099, but for others income must be calculated by themselves. Freelancers should think carefully about what type of expenses they typically incur as part of their business and create a checklist, including their typical expenses. Such a checklist can be created in Microsoft Excel or in a budgeting software program for small businesses.
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Supplies and Equipment
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Freelancers can deduct expenses for supplies and equipment purchased for their business. Supplies may include paper, ink, pens, pencils, calendars, tape, paper clips, staplers, staples, software and other specific supplies needed for their business. For example, photographers should deduct film and photo developing supplies. Freelancers can also deduct equipment such as computers, printers, fax machines, office furniture and other specific equipment needed for their business, such as video cameras for a videographer.
Travel Expenses
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Freelancers who travel for their business can deduct travel expenses. Travel may be either local or out-of-town travel. They can deduct mileage and automobile upkeep expenses and can also deduct plane, train, bus or subway fare and hotel expenses. The IRS allows self-employed freelancers to also deduct 50 percent of the cost of meals and entertainment incurred when conducting business. If a freelancer attends conventions and conferences related to their business, they can also deduct registration and tuition fees.
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Home Office Deduction
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Most freelancers will have some sort of home office or workspace. The office does not have to be a separate room; it can be a designated area in another room such as a corner in the family room or a section in their bedroom. A home office deduction will allow a freelancer to deduct a percentage of his mortgage interest, home insurance and utilities. The percentage he can deduct is equal to the percentage of his home used in his business. For example, if he has a 1700 square foot house and uses a 120-square foot space for work, he can deduct 7 percent of his home's expenses because 120 square feet is 7 percent of his home's total area.
Other Deductions
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If freelancers pay medical insurance premiums, they can deduct 100 percent of the premiums paid. Freelancers can also deduct all of their IRA contributions and half of their social security contributions. It they pay their child to perform work related to their business, they can deduct what they paid the child from their earnings as well.
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