Top Tax Write-Offs and Deductions for Freelance and Work-from-Home Employees
Most of the people that I know who do freelance work or who otherwise work from home are people who get really excited when it comes time to check the mail each day. That is because we are regularly waiting on checks for payment from the people who purchase our goods and services. We go to the mailbox six days a week hoping to find those checks there. At this time of year, however, we aren’t just finding our checks in the mail. We are finding those W2 forms from the clients that we worked with all throughout last year. These W2s are the first reminder that it is time to start thinking about filing this year’s taxes.
There are a lot of things to think about when it comes to filling out your taxes as a freelance or work-from-home employee. The one thing that everyone always wants to make sure to think about first, though, is tax write-offs. Everyone wants to make sure that they take advantage of all of the tax write-offs that they possibly can. A review of the following list will assist you in making sure that you’ve remembered all of the tax write-offs that are available to you as a freelance or at-home employee.
Top tax write-offs and deductions for freelance employees and people who work from home:
• A portion of your rent and mortgage. When your home is also your business you get to consider a percentage of the costs of that home to be business expenses. Figure out how much of the home you actually use to conduct your business (something that’s easy to do if you actually have a home office) and use that percentage of your annual rent or mortgage for your tax write-off.
• A percentage of repairs done to areas of the home where you conduct your business. If you had to make any repairs to the area of the home where your business is conducted then you may be able to deduct the cost of those repairs on your taxes. This doesn’t mean that you get to go remodeling like crazy at home and call it a business expense but it does mean that you can write off the remodeling costs that were actually necessary to improve the home office just like you would if you had to remodel an out-of-home office.
• Any technology that is purchased for the use of your business. There are certain technology purchases that were probably specifically made for your business – your computer or the new printer that you use for example. Any of these purchases is a business purchase.
• A percentage of the bills that are paid to keep up your business. The utilities, the phone bill and the cable Internet may all be deductible from your taxes, at least in part, if you are using them at your home for the purpose of your work at home.
• Travel associated specifically with the work that you do. If you have done any traveling for your business in the past year then you can reasonably deduct those travel costs. Be aware that there are two types of business travel for the freelance employee – travel that was specifically for business and for no other purpose and travel that was partially for business and partially for pleasure. What you can deduct and what percentage of it you can write off depends on whether you were traveling wholly or only partially for business
• Transportation costs associated with conducting your at-home business. Even when you aren’t traveling away from your hometown, you may be using transportation for your work. Car trips may be required for meetings with clients, trips to networking events and running to the store to get office supplies. Keep track of your mileage and deduct an appropriate amount for your car (the car payment and the insurance) as well as for your gas and any tolls that you paid.
• Health insurance costs. If you pay for your own medical insurance so that you can be covered even though you work from home then you can deduct the cost of that medical insurance on your taxes.
• A percentage of the insurance for your home, travel and transportation. Other types of insurance may all be partially deductible on your taxes. This includes theft insurance for your home, travel insurance that was purchased and used for business-related trips and transportation insurance. Consider all of the forms of insurance that you pay for and whether or not they are related to your work as a freelancer or at-home employee.
• Retirement plan deductions. If you pay into a retirement plan as a self-employed individual then you may be able to deduct those costs on your taxes.
• Deduction for the interest on any business loans that you have taken. Many people have had to take out business loans in order to start or continue operating their freelance or home-based businesses. If this applies to you then you should know that the interest on those loans may be written off on your taxes.
• Deductions for payment not received. Did you have any clients that failed to pay you in the past year? Don’t forget to write these off since you didn’t actually earn that money.
• Fees from banks. Some banks charge you fees for transactions. Many freelancers are using PayPal these days which has big fees. Don’t forget to write these off as well.
• Services purchased specifically for the business. If you use the services of an attorney or an accountant or any other business professional then you want to make sure that you include those expenses as part of your business costs.
• Daily expenses for items used during the course of work. Hopefully you’ve been keeping track of your daily expenses for work. All of that paper and ink that you bought for the printer and the stamps that you purchased for brochure mailers is deductible as a daily business expense if you’ve got the receipts to prove that you made those purchases.
• Cost of materials for any products that you sell. Not all freelancers are doing work on their computers. Many of them are selling items that they make at home. These people need to remember to write off the cost of the materials used in making those products.
• Storage costs. If you have to store anything related to your business then your storage costs may be written off on your taxes. People who sell items from home often include their storage costs in the total deduction for the percentage of their home that is used for business.
• Payment to employees or subcontractors. If you made any payments to other people for a portion of the work done that you later submitted to clients then you can write off that portion of the payment.
• Business gifts. There are some times when it is appropriate to purchase gifts for our clients. If that was something that you did last year then you may want to write that off when doing your freelance taxes.
• Stock losses. Did you take a loss on your stocks this past year? Make sure that you look in to how to write that off as a deduction against any capital gains that you may have had.
• Charity donations. There are really specific rules about charity donation write offs but if you’re someone who donates then you should look into them.
Bear in mind that these tax write-offs don’t necessarily apply to all freelance or at-home employees and that they must be used appropriately when doing your taxes. You may want to work with a tax professional to get the right deductions on your taxes. You want to get as much back as you can while still sticking within the legal parameters of what you are allowed to deduct.