12 Tax Deductions Freelancers Should Be Claiming

Running a freelance business can be costly — surprisingly so for those new to the gig. We’ve got a reputation for having a wide array of awesome deductions, and that’s true, but what’s even moreso true is that they are well deserved deductions. In this article, we’ll take you through 12 of the best deductions almost every freelancer can claim, but often newer players don’t bother with.

Of course, allowable tax deductions vary wildly from country to country. For those in the Western world, these should remain fairly consistent between countries with differences in the details, so consider this a jumping off point for further country-specific research.

Home office expenses

There are so many expenses incurred in running a home office and for many freelancers, this is unfortunately where the entirety of their deduction focus lies. As you’re about to see, it’s just the start — but certainly not to be ignored, because it can take a massive chunk off of that tax bill.

Internet, phone lines, mobile phones, office furniture, computers, utilities, stationery — there’s a laundry list of stuff that falls in this category. Make sure you check out the rules for each individual item in this category — you’ll often have to figure out the percentage of a net or phone connection that you use for business purposes as opposed to home purposes, or depreciate office equipment like computers over a few years and claim accordingly.

Research and publications

Need to buy a book for research, or you subscribe to a magazine that’s related to your field? You’re in luck — these are deductible expenses. As always, don’t jump the shark as you’ll need to be able to defend these deductions in case of an audit. No, that scuba diving magazine won’t fly if you’re a web designer who specializes in sites for politicians.

Education

On a related note, education that relates to your field is deductible. You can’t take classes in order to get into a new field and deduct them, but if you’re advancing your knowledge of the field you are already in you’re in luck.

Though this largely hearkens back to research and publications, textbooks and other expenses required by the class but on top of the class fee itself are generally deductible.

Meals, entertainment & other client meeting expenses

Some clients sure like to be wined and dined. I’ve heard of clients who will play hard to get just to try and get a business diner out of a service provider’s inner salesman. Fortunately, these pricey adventures — and their more common cousins, the coffee shop meeting — are deductible.

Beware your country’s laws, though — in some, such as the United States, you’ll only be able to claim 50% of the cost, not the entire bill.

PayPal fees

Many modern freelancers conduct business across and even within borders using PayPal. Despite its astronomical fees, this service is used out of convenience more than anything else — but if you go for that convenience you’ll feel it when the money gets to your bank account.

While it doesn’t quite make up for the loss of large chunks of your fees, you can deduct those fees from your taxable income. Small blessings.

Subcontractors

As you scale your sole proprietorship into a small business, or if you simply need to palm off some work when things get busy from time to time, you’ll find yourself using subcontractors more and more as time goes on. Fortunately, these expenses are deductible. Since they can be huge expenses — especially when they are ongoing — you’d find yourself unable to pay your tax bill without these deductions, so be sure to apply them.

Advisors

In a similar category to subcontractors are advisors who you go to for help with the running of your business — accountants, lawyers, business planners and the like. For business purposes, these guys are all deductible. If you use the same lawyer for business purposes as you do for personal matters, though, you’ll need to deduct only those bills that pertain to the business.

Unpaid invoices

What happens when a bad client doesn’t pay an invoice? Obviously you’re not going to be liable for tax on the amount you’re invoicing for as you never received payment, but what few freelancers realize is that you can actually write off the amount of that invoice as a bad debt. You spent time working and didn’t get paid for it, so it makes sense that the tax office should help you mitigate how that affects your tax bill.

Payments to non-profits

In some countries such as the United States, charitable donations are not valid business expenses. If you’d like to use your business to support non-profits while getting a tax deduction, though, you can opt for a marginally different solution: payments to non-profits for products or services.

In some countries donating to registered charities may qualify you for a tax deduction, so be sure to check out your local laws.

Health insurance premiums

If you’re coming from a full-time job to freelancing, one of your big concerns may be the lack of benefits such as health insurance. Most governments make this easier on the self-employed by allowing the cost of health insurance to be deducted from taxable income.

There are some conditions in most areas that you’ll need to check. You have to be paying the premium yourself, and if your spouse has a health care plan that covers you, your own health insurance won’t be eligible for deduction.

Car usage

Unless you work exclusively from your home office, you’ll likely be putting in some miles in the car getting to client meetings, co-working locations and cafes with Wi-Fi. You can keep meticulous mileage records and deduct your actual expenses incurred, or you can use the standard mileage rate determined by your country’s tax authority.

If using the actual expense method, which requires you to calculate the percentage of driving you did in a year that was business-related and deduct only that percentage of the costs, be sure to include expenses other than gas alone. Car services, repairs, and other maintenance costs can be included in the calculation.

Travel

Expenses incurred in taking business trips are tax deductible. There are a bunch of conditions that tax authorities impose in order to ensure you can’t deduct for any old holiday. There must be a pre-determined business-related purpose for your trip, outside of your own city, and be overnight or longer.

Travel is a big audit flag, as with car usage, so keep your records meticulous and don’t try and push the limits of your claims (not that you should be doing this at all to begin with). That said, it’s a fair business deduction so don’t let that scare you off — just be careful.

Though these 12 items are the biggest deductions that most freelancers will be able to make, there are plenty more possibilities — often niche items that apply to specific professions. Let us know about the little-known legitimate deductions that make your tax season a bit easier in the comments.

4 Responses to “12 Tax Deductions Freelancers Should Be Claiming”
  • Thx for a great list.

    I have send it around in my network.

    Regards
    Kris

  • Delbert Denofrio says:
    August 3, 2012 at 6:03 am

    It’s the second time when i’ve seen your site. I can gather a lot of hard work has gone in to it. It’s actually good.

  • Nancy Ellegood says:
    December 19, 2012 at 1:15 pm

    Hello,

    As the end of the year approaches I began looking into these “Home office expenses.” It was surprising to discover the deduction can even include a percentage of your mortgage or rent, home owners taxes and insurance. Here is how it is calculated. Numbers of rooms in your residence, so lets say 6; Numbers of rooms in your home that are used, lets say 3.

    This means 50% of the home is used for your working from home.
    On a $1,200 payment for Principle, interest, taxes and insurance then
    $600 is deductable.
    With a 40% deduction for the total hours you worked during the year, then
    $480 is deductable.

    Hours Worked
    To calculate the number of hours you work yearly. There are a total of 365 days in the year. Deduct holidays that you do not work. Deduct weekends that you do not work. And deduct vacation you take that you do not work. Here is an area that is easy to say that most of us work at least a few hours every day. Even most holidays and if we take a vacation along comes the laptop. (Paymo, “Time, Tracking & Billing” is a great means of physical proof for this hourly total.)

    I worked this year; 302 days at 11.5 hours daily for a total of 3473 hours. There are 8760 hours in a year so I worked 40 % of the year.

    Rooms Used
    However, each room really must in some way be used in your business or at least be available to use for your business daily. For me this includes the dining room where I have meetings with clients; the office that I do most of my work; and the small bedroom where I store all my supplies.

    This was a great deduction, $1080 that I did not have to pay taxes on this year.
    Thanks so much,
    Nancy

  • The last comment (Nancy) isnt actually 100% correct. You can claim only for the % of floorspace that is used SOLELY for business purposes. So in the above example, if your dining table hasnt 100% been seconded to a conference room table and is no longer used ever for dining – i wouldnt go there. even if your home office is in your bedroom its not permissable.

    ALSO – BEWARE – that if you claim deductions on the “income generating” section of your home when you sell it that same fraction is liable for capital gains tax. So claim 50% of your home to save a few bucks on tax and expect to have to pony up CGT on 50% of the gain!

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