9 Unexpected Tax Deductions for Freelancers
Working as a freelancer can be a tough racket. In addition to the unpredictability of your earnings, you’ll miss out on certain benefits that a major employer can offer, such as health insurance.
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On the plus side, the IRS views freelancers as business owners. This means you can take advantage of a whole slew of tax deductions that you may think are only reserved for major corporations. Here are some of the most important tax deductions you may be entitled to as a self-employed individual, including a few that may be surprising to you.
Business Loan Interest
Interest you pay on money you borrow for business expenses is tax-deductible.
Perhaps surprisingly, this also applies to business expenses you put on a credit card. It can make your life a lot easier at tax time if you use a specific business credit card and keep your personal expenses physically separated. However, as long as you can identify which purchases and interest apply specifically to your business, you can claim a tax deduction.
Home Office Deduction
If you’re a full-time worker and you use a private room in your home for your business, you can obviously claim a home office deduction for that portion of your house.
However, even if you simply work a few hours a week in your garage as a side gig, you may be able to claim the home office deduction as well. Just remember that you must identify a specific area of your home that is used strictly for business purposes and limit your deduction to that area only.
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Self-Employed Health Insurance Premiums
If you’re a freelancer and don’t work for another company, you likely have to pay your own health insurance premiums. While this is certainly one of the downsides of life as a freelancer, at least there’s a tax break waiting for you.
The IRS allows freelancers to deduct all of their self-employed health insurance premiums, including any you may pay for your family members.
Business Use of a Vehicle
Depending on the type of work you do, you likely drive your car at least some of the time for work purposes. This means that you use your vehicle for business, allowing you to take tax deductions on everything from your oil and gas expenses to maintenance costs and even the miles that you drive.
Bear in mind, however, that your deduction is limited to the percentage use that can be allocated to your business use only.
Business Use of a Phone
You may not think that talking on the phone can provide tax benefits, but if you’re a freelancer it certainly can. The cost of your phone, your mobile service plan and any insurance or related costs can be written off if you use that phone for your business. As with other expenses, though, your deduction is limited to the percentage of business use that you get out of your phone.
For example, if you use your phone 30% of the time for business, you can deduct 30% of the costs associated with that phone. The best way to keep track of your business use of a phone is to have a separate line for your freelance work.
Half of Your Self-Employment Taxes
One of the other huge negatives of working for yourself is that you’ll have to pay both the employer and the employee portions of your Social Security taxes, amounting to a whopping 15.3% of your income. But at least you are able to take a tax deduction for half of the amount that you pay.
Qualified Business Income Deduction
The qualified business income deduction was a gift to business owners across America when it was implemented in tax year 2018. The QBID allows sole proprietors and other pass-through entities (like S corporations) to deduct 20% of their qualified business income from their taxes.
This applies even if you only work as a freelancer part-time. However, this provision is slated to expire at the end of tax year 2025.
Educational Expenses
Educational expenses that directly relate to your own business can be written off for freelancers. For example, if you work at home managing spreadsheets for clients and you simultaneously take a course in accounting at your local community college, you can likely deduct the cost of that class.
Advertising, Marketing and Office Supplies
Many people think that the tax deduction for advertising, marketing and office supplies only applies to big companies, but that’s erroneous. You can deduct everything from the ink and paper you use for your printer to the ads you place on Google linking to your business web page.
As with other expenses, you can only deduct the percentage of these costs that are directly related to your business. While this may include 100% of your advertising expenses on Google, for example, it will likely only be a small percentage of your printer supplies — unless you keep a separate printer specifically for the use of your business.
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