Categorized | Advice

Freelancers & Tax Deductions

Posted on 22 October 2008

Freelancers enjoy working when and how much they want and being their own boss. However, along with the freedom of freelancing, comes the responsibility to manage finances. This includes filing taxes. Before you file in 2009, read the following article. If you don’t have a financial planner or accountant, be sure to get one. They are the experts at reducing tax bills.

Direct & Indirect Expenses
How do you determine what is an expense? Direct expenses are those expenses that benefit only the business part of the home. For example, if you need to repaint your office, this would be 100% deductible.

However, indirect expenses are those expenses that benefit both the business and personal parts of the home. For example, this includes property insurance, property interest and taxes, rent, repairs, utilities, and depreciation.

Here are some tips on what you can deduct:

Office Deductions

Your office space (rent or mortgage)- Part of your rent or mortgage payment, based on the size of the room, can be deducted. However, the room must be strictly used for business purposes only. Here’s how to determine this:

  • You exclusively use a portion of your home on a regular basis as your principal place of business; or
  • The home is used by patients, clients, or customers in meeting or dealing with you in the normal course of your business; or
  • You have a separate structure that is not attached to your home, and are using that separate structure in connection with your trade or business.Electric Bill, Phone, Internet ServiceBased on the size of your office, you can deduct a percentage of your electric bill. For example, if your home is 1,000 square feet and your office is 10 x 10, you can deduct 10% of your electric bill. So, if you determine your electric bill is $1,000 a year and $500 is used exclusively in the office, you can deduct $50 from your taxes.Deducting phone expenses is a little different. If you make a lot of long distance calls, you’ll want to keep a running list of calls made. An easy way to do this is to set up an Excel spreadsheet with the date the call was made, who was called, minutes and amount charged. Also, keep your phone bills filed if you need to refer to them later.

    If you exclusively use Internet service with your business, you can deduct this monthly expense.

    Office Supplies

    If you didn’t stock up on supplies at the end of 2008, mark it on your calendar for this year. Pens, pencils, printer paper, ink cartridges and more can be deducted from your taxes.

    Office Equipment & Furniture

    Throughout the year, as the need arises, purchase office equipment & furniture to reduce your tax burden even more. This could include a new fax machine, printer, answering machine, phone, lamps, furniture, blinds, chairs and whatever else you use exclusively in your office.

    Business Dinners

    A fun way to reduce your taxes even more is to take your clients out to lunch! To claim these expenses, the meal must be used for business and you need to keep the receipt from the dinner, which itemizes what you purchased. For tax purposes, a credit card receipt isn’t good enough.

    Auto Mileage

    If you travel frequently for business, you can deduct the mileage, as long as you keep a mileage log. This log should include the miles, the date, and the destination. Even if you are making a short trip to the office supply store, you can deduct the mileage for that, as you are using your car for business purposes. So, if you drive for business, be sure to stop by the office supply store, pick up a mileage log and jot down those miles!

    Education & Training

    If you are in a field that requires on-going education, you can deduct expenses from classes, books, seminars and training. Also, if your field requires membership in a professional organization, this can be deducted as well.

    For more information on deductions and expenses, be sure to contact your accountant or financial planner. They will be better able to assist you with your particular tax situation. As every case is different, there are deductions you may not be able to take and there may be ones you can take, that aren’t listed here.

    Good luck and happy freelancing!

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    1 Comments For This Post

    1. Steve says:

      It’s worth taking a look at some technology for the auto mileage thing. I’ve read some intersting things on the Mileage Logger by Vulocity and some applications for the i Phone. Definitely worth checking out.

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