Save Your Receipts!
Don’t Miss These 12 Tax Deductions for the Self-Employed
I’ve been freelancing for six years, but have never been good at saving my receipts — until this year. My freelance gigs were a side business. It was only after making consulting my full time job that I realized I needed to be more diligent about tracking my expenses. The self-employment tax is 15.3% on your net earnings, but any “ordinary and necessary” business expense that you can back up, you can deduct from your income to calculate your net profit. I’m not a tax professional, but I’ve accumulated valuable tips to pass on to the many entrepreneurs who may be missing out on some of these deductions.
1. Starting Your Business
Did you pay someone to help you start your LLC? Those fees and the incorporation costs are all deductible. Did you need to obtain a business license? Save the receipt! The costs of registering and designing your website, and paying for the hosting, is another deduction.
2. Marketing Costs
At some point, everyone needs to promote their business. Social media is an obvious way to reach your audience. Not only do paid ads count as a reasonable expense, but so do tools like Sendible and Hootsuite for scheduling organic posts. Traditional marketing is deductible, too, like sponsoring a t-ball team and getting your business’s name on their shirts. As long as you’re promoting your business, it most likely passes the test.
3. Interest
Were you aware that if you borrow money for your business, you can write the interest off as a business expense, even if it’s on a credit card? That’s one reason that having a separate card for business expenses can be extremely helpful.
4. Professional Fees and Other Labor
Any fees you’ve paid to lawyers, accountants, or other professionals are also eligible to be written off. Quick side note: be sure to ask all of your vendors and independent contractors for a W-9 before you pay them; technically you only need it if you’re paying for labor and services above $600, but it’s a good idea to get one anyway. You’ll have to create a 1099 for them at the end of the year, and all the info you need is on the W9.
5. Working from Home
Many of us are working from home these days, and those expenses can get a little tricky. If you have a home office space for freelance work, you can only deduct the cost of that space if it’s solely used for that purpose. What you’d do is measure the space, find the square footage, and divide that by the total square footage of your home. For example, my home office is 7’ x 11’ (77 square feet). The total square footage of my apartment is 727 feet. My office is 11% of my home. That means I can deduct 11% of my annual rent. I can deduct my utilities using the same percentage, too.
I realize it’s a luxury to live alone. When I had a roommate, I calculated the percentage of rent I was paying and measured that against the total square footage of the apartment we were renting. I divided my office space by the square footage of the part of the apartment I was paying for.
This next bit requires a little more work, but you can write off the percentage of internet and your phone that you use for your business. That means creating an accurate estimate when evaluating how much you use for work and how much for personal time. You might consider keeping a log for a week, and using those numbers as your average.
6. Insurance
One upside to laying out a small fortune for health insurance is knowing the premiums are tax deductible. Liability insurance to protect your business is deductible as well.
7. Child Care
As a dog mom, it’s disappointing to me that I can’t write off doggy daycare or the cost to board my dog when I have to travel for work. Those costs add up and daycare is really necessary to be productive sometimes. For parents of human children, though, the self-employed are able to write off childcare expenses, including day camp, which is huge.
8. Business Meals
Beginning in 2018, the IRS stopped allowing expenses related to entertaining clients to be written off. Maybe they were tired of people trying to write off extravagant strip club receipts? There’s still plenty to deduct though. And starting this year through the end of 2022, you can write off 100% (instead of 50%) of the cost of food and beverages for business-related meals! Taking an employee or client out for coffee to discuss business counts, and so does food for yourself if you’re traveling overnight for work.
9. Education
Professional development is a lifelong process, and the IRS agrees. Acceptable learning expenses include webinars, courses, workshops, certificate programs, books, audiobooks, and even career coaching.
10. Professional Association Membership Fees
Depending on your line of work, you may get a lot out of belonging to a professional association, which includes your local Chamber of Commerce, ranging from enhanced credibility to networking opportunities. Those membership fees are tax deductible for the self-employed!
11. Travel
The things you might expect, like the ticket and checked bag fees, can be written off, unless you’re using frequent flyer miles (sorry, they have no cash value when it comes to tax deductions). I was surprised to learn that fees for laundry and dry cleaning while you’re away make the list, too. And if you have to ship something separately, like a display or swag for a conference, save the receipts for those shipping fees. Tips are deductible so there’s especially no excuse to be stingy there! Tips are an “ordinary and necessary” expense.
12. Tax Help!
I’d definitely recommend seeking out a professional to help you prepare the taxes for your business. The expenses for preparing your self-employment taxes are deductible (not the rest of your return though), so it’s all the more incentive to start building a relationship with a CPA.
How Do I Organize This?
Tracking everything can be overwhelming. My best advice is to either get a free scanner app, like Genius Scan, or if you can afford it, an actual scanner (I personally love my Fujitsu S300M that’s been reliable for over a dozen years; I’m hoping to upgrade to their ix1600 this year). You’ll also want to keep everything in one place, like a Google Drive folder. I promise you’ll thank yourself come tax season.
More Resources
As I said earlier, I’m not an expert, so please don’t substitute this article for the advice of a professional. If you’re looking for a place to start, the IRS has a lot of resources for the self-employed. A great reference to bookmark is their publication 535, which goes into the nitty gritty details of business expenses. Once you have control of your write-offs, taxes will be a little less scary!
