Running a freelance business comes with a host of expenses — health insurance, purchasing office equipment, and self-employment taxes, to name a few. To offset the additional costs of being a solopreneur with an LLC, maxing out allowable tax deductions can help lower your tax burden.
When dealing with taxes as a freelance business owner or solopreneur, here are some common expenses you can write off.
Advertising and Marketing Costs
Expenses related to marketing your freelance business, such as marketing campaigns, business cards, domain names, and website hosting and maintenance, can be tax-deductible. If you are doing anything to help get more eyeballs on your freelance business from a marketing and advertising standpoint, be sure to write off these expenses on your taxes.
Travel Associated with Your Freelance Business
Any expenses related to business trips may be deducted from your taxes, including the cost of airfare, transit, accommodations, parking, fuel, mileage, and toll fees. Under the Tax Cuts & Jobs Acts (TCJA), you no longer will be able to write off certain travel costs. The IRS designates what deductible travel expenses are allowed on its website.
Meals When Traveling
Meals you had with clients when you were discussing work-related matters (and during business trips) can be deducted up to 50%. However, meals you enjoyed solo while working cannot be used as a write-off.
Make sure you document:
- The date and location of your meal
- The total cost of your meal
- The person(s) you dined with and what business was discussed over the meal
Self-Employment Taxes
All businesses, including freelance businesses, need to pay self-employment taxes. The good news is that the 15.3% you pay for self-employment taxes can be deducted from your taxes at the end of the year.
Health Insurance Premiums
As a solopreneur and freelance business owner, you can deduct the costs of your health insurance, dental insurance, and long-term care policies from your yearly taxes.
Health Savings Account
If you have a health insurance plan that has a high deductible, it’s eligible for a Health Savings Account (HSA). Putting money away into an HSA can help lower your tax burden. In 2023, the HSA contribution limit will be $3,850 for self-coverage and $7,750 for family coverage. Anyone over the age of 55 is allowed to contribute an additional $1,000.
Insurance Policies for Your Freelance Business
Insurance policies you purchase to protect your business (i.e., liability, umbrella insurance, errors, omission, etc.) can also help lower your tax burden when you apply them to your yearly expenses.
Home Office
If you work out of a space in your home, you can write that off for taxes. There are only two requirements for a home office deduction, explains Katherine Pomerantz, Owner and Chief Bean Counter at the Bookkeeping Artist. The space in your home must be:
1. Regularly and exclusively used for the business
2. The principal place of your business.
“If you want to claim a home office deduction, you must NOT use the space for anything else,” cautions Pomerantz.
In other words, working from your dining room table or couch doesn’t make it eligible to be a home office. However, you can count part of a room if there is some sort of partition, like a curtain or a standing screen that separates the business and personal space.
You also can’t count a home office if you have a secondary office somewhere else. An exception might be if you rent a coworking space for meetings. “Since that is a special event, your home is still your primary workspace,” says Pomerantz.
Utilities
If you have a home office, utilities such as water, power, electricity, phone, and internet can all be deducted from your taxes. Make sure you take your deduction proportionally: If your home office makes up 10% of the square footage of your home, you can only deduct that percentage from your bill when doing taxes.
Office Supplies, Software, and Equipment
Supplies you use for your freelance business, such as printer ink, a laptop, office desk, paper, computer monitor, external hard drives, business software, and cloud backup software, can be used as tax write-offs. That being said, some larger office supplies may need to be deducted through depreciation rather than an all-at-once deduction.
Vehicles and Transportation
If you use a car for business purposes, costs such as gas, registration fees, parking, insurance, and repairs can be deducted. One caveat: If you’re using the standard mileage rate for a vehicle, the only other expenses you’ll be able to deduct are parking and toll fees.
If you use public transit such as a bus or train for business reasons, this can be deducted, too. Similarly, if you use a bike for the same purposes, you can deduct bike maintenance, repairs, and bike-sharing service fees.
Depreciation of Assets
The depreciation of business assets that last longer than a year can also be used to lower your tax burden. Some examples of where this can apply include:
- A car you use for your business
- Major office equipment
- Office furniture
- Tools
- Computers
In order to take this deduction, you’ll need to fill out Form 4562: Depreciation and Amortization. If you choose the “expensing deduction,” you’ll be able to deduct the full cost of both new and used assets that you bought that year.
Note that if you use the standard mileage rate for transportation (above), you won’t be able to deduct depreciation of vehicles used for your freelance business — choose one or the other. We recommend checking with a CPA or tax professional if you’re considering whether to depreciate an asset or expense the full purchase amount right away.
Conferences and Networking
Any expenses for professional conferences or networking events can be deducted when you’re self-employed. Note that starting back in 2018, membership dues are no longer tax-deductible.
Education
Any costs toward your continuing education that helps your business, such as a night class at the local college or online certification, can be a tax write-off. Various webinars, online courses and seminars that help you improve your skills and knowledge for your business can be applied as a write-off for your freelance business. If you purchase any books related to your industry or subscribe to any trade publications, they too can be a freelance business write-off.
Professional Services
If you consult a professional, such as a lawyer, accountant, SEO expert or marketing professional for your business, you can write off those expenses on your taxes to lower your tax bill.
Hiring Independent Contractors
Did you hire a WordPress guru to revamp or do a full audit of your freelance business website? Maybe you paid a graphic designer to design a new logo? Any fees you paid to independent contractors for business services rendered can be deducted from your taxes.
Miscellaneous Expenses
Bank fees and fees incurred when receiving payment from online services (e.g., PayPal, WePay, Stripe) can be deducted for taxes. You can also deduct online subscriptions relating to your work, such as an annual subscription to the AP Stylebook or Chicago Manual of Style. Postage can also be deducted from your taxes. And the gifts you send to clients or employees can be deducted up to $25 per person.
Get Tax Filing Help from Incfile
We’re here to help. To complete your business taxes, speak with a representative at Incfile’s business tax service for professional, personalized advice.
