Being self-employed can bring a great deal of freedom, both professionally and personally. Along with that freedom, you are now responsible for handling all of your own expenses. By keeping good records, you will soon be able to grow your business, but you can also reduce your tax liability as well. This is due to the amount of deductions that are available to you as a freelancer. Working with your tax professional or accountant, such as Allan in Forest Hills, NY, to make sure that you have accounted for all your deductions. Here are the top five deductions you need to be sure to keep track of on an annual basis.
If you can meet the basic requirements of a home office deduction, you can benefit from taking a portion of your home’s expenses as a deduction. Here are the requirements that you need to meet:
To claim this deduction, you can choose to use the standard method to come to the amount you can deduct for your home office based on its square footage. Therefore, you will also need to use the Form 8829 to determine how much of a deduction you qualify for.
The costs associated with your internet and phone are deductible as utility expenses. If they are used for both business and personal, then you can only deduct a percentage based on how much you use for the business purposes. Therefore, you need to keep track of the time you are using these services for your freelancing business.
If you are using various online tools, such as Dropbox or Office 365, you need to keep track of those business expenses. They may also be deductible. In addition, if there are other pieces of software that you purchase as part of your freelancing, you will need to keep track of those expenses as well. Again, these must be purchased for your business use as the primary use to qualify for a deduction.
If you had to borrow money for your freelancing business, then the interest paid on those loans may be deductible. You can also deduct any bank fees or charges that you incur on behalf of the business. If a loan is for both personal and business, then you need to create the split as you would on any other deduction, to only claim the deduction for the business portion use.
Additionally, any legal or professional fees can also be deducted, as long as they are directly related to the running of your freelancing business. Expenses, such as hiring an accountant, would count as these types of professional fees.
When you make your retirement contributions, you can use these contributions to reduce your taxable income for the year. However, you cannot contribute more to your IRA than your total earned income for the year or the annual maximum amount set for that year, whichever is less.
As someone who is self-employed, you can also claim deductions for all of your medical expenses, including dental and long term health care insurance premiums. Therefore, you want to be sure to track all of your medical expenses and those of your spouse. However, you might not be eligible to deduct these expenses if you are eligible to take advantage of your health care coverage under your spouse’s employer.
While this is not an exhaustive list, it is important that you keep good records of the fees you incur as part of your business, as well as any vendors or other equipment purchases that you make. While freelancing means that you might not meet your clients face-to-face, in most other aspects, freelancing is just like running any other business and provides many of the same deduction opportunities!
Click on the link below to contact a tax professional at Allan J Rolnick in Forest Hills, NY, who can assist you in determining what deductions you may qualify for and how to claim those deductions!
Allan J Rolnick, CPA, CTC