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Tax Deductions for Freelancers: Boost Your Bottom Line

By Lindsey Rudy

Published on 5 Feb 2024 6 min read

Freelance work comes with loads of benefits. You can earn extra money and choose your hours. As a freelancer, you might even have enough work to replace your 9 to 5 job. And just like any other job, you must pay tax on the money you make when you freelance. 

The good news is that you can deduct many business expenses when you freelance. Maximizing your tax deductions lowers your taxable income and keeps more of your money at tax time. Find out how to boost your bottom line with tax deductions for freelancers. 

Tax Deductions for Freelancers

The IRS allows you to deduct reasonable and ordinary business expenses against the income earned if you freelance. Common tax deductions for freelancers include:

Home Office Expenses

If you work from home, you might be able to deduct a portion of related costs, such as your rent and utilities. To qualify for the home office deduction, you must meet both requirements below:

• Regular and exclusive use: You must have a dedicated office or workspace that you use exclusively for business activities. Using the corner of your dining room table won’t qualify because it’s not an exclusive area.  
• Principal place of business: Your home must be the principal place where you conduct business. Even if you work from another location, your home office may still qualify if you use it as your principal place of business regularly. You do not qualify if you are working from home as an employee.

If you qualify, the IRS lets you determine how much you can deduct as home office expenses using either the simplified method or actual expenses.

Under the simplified method, you multiply the square footage of your home office or workspace by a set $5 rate. The IRS limits the square footage to 300 square feet. You can elect to use the simplified method every tax year.

If you don’t use the simplified method, you calculate your home office deduction using actual expenses. To do this, add up the total relevant costs you paid such as rent and utilities. To calculate the home office deduction, you multiply these costs by the ratio of the square footage of your dedicated office space and the total square footage of your home. 

Advertising and Marketing Expenses

The costs you pay to advertise and market your freelance business can be tax-deductible if reasonable. Advertising and marketing costs may include payments for social media ads, content marketing, directory listings, and print advertising. 

Phone and Internet Expenses

As a freelancer, you can write off part of what you pay for phone or internet services based on the percentage used for your business. A second phone line or internet connection may be fully deductible if you use it exclusively for your business. 

Office and Work Supplies

As a freelancer, you likely need some supplies to do your work. Office and work supplies, such as paper, toner, notebooks, and pens, are deductible expenses if you use them in connection with your freelance work.

Mileage 

If you use your vehicle for business travel purposes, you may be able to take a deduction based on the miles driven for freelance activities like seeing clients or visiting other business locations. You calculate your mileage deduction by multiplying your yearly business miles by the IRS standard mileage rate of $0.655 per mile. 

Commuting miles are not tax deductible. Yet if you work from home, mileage from trips taken from your home to see clients or visit other business locations is deductible.

Business and Health Insurance

If you carry general liability, property, or other insurance for your business, the premiums you pay are tax-deductible. Plus, you might be able to deduct your family’s medical and dental premiums as a freelancer if you or your spouse aren’t eligible to participate in an employer-subsidized health plan. 

You must be self-employed and report a net profit from your self-employment activities for the year to qualify. Generally, your self-employed health insurance deduction is the lesser of

• Qualified health insurance premiums paid during the year.
• Net profit and other earned income from your business, less any deductions taken for self-employment tax or retirement contributions as reported on Schedule 1 (lines 15 and 16) of your personal tax return.

Continuing Education Expenses

The money you pay for educational costs may be tax-deductible. If you get a certification or take classes to improve your knowledge, you can deduct these costs if they directly relate to your freelance business. 

Legal and Professional Fees

If you consult an expert, such as a lawyer or accountant, for matters related to your freelance work, the fees you pay for their services are tax-deductible. 

Retirement Savings

You may be able to deduct retirement contributions on your personal tax return when you freelance. If you have a SEP-IRA or traditional IRA, you may be able to deduct your contributions if you meet specific requirements.

Under a Simplified Employment Pension Individual Retirement Plan, or SEP-IRA, you can contribute up to $66,000 (in 2023) but no more than 25% of your net adjusted self-employment income. 

Alternatively, you might be able to deduct traditional IRA contributions of up to $6,500 (or $7,500 if aged over 50). However, your deduction may be limited based on how much money you make and whether you or your spouse contribute to another qualified retirement plan.

Business Memberships

The dues you pay to join professional associations related to your freelance work are generally deductible if they are ordinary and necessary for your business. Dues or fees paid to trade associations, chambers of commerce, or public service organizations may be deductible.

You cannot deduct club dues or fees paid to associations organized for recreation, pleasure, or social purposes. 

How to Prepare to File Taxes and Track Tax Deductions for Freelancers?

Steps you take now to track your deductions can cut back the stress of filing your tax return. These steps include: 

• Maintain good records: Keep copies of invoices and receipts to support your freelance expenses. In addition, you should also keep copies of your credit card and bank account statements. 
• Track expenses: Bookkeeping software, spreadsheets, or pen and paper are tools to track and classify your expenses. Tracking freelance expenses in one place helps avoid missing possible deductions. 
• Gather documents: Whether you prepare your own personal income tax return or use a professional, gather all relevant documents before you begin. These documents may include 1099’s received from your clients, a total of your business expenses, as well as crucial information like your social security number and banking information. 

How to Claim Deductions on Your Taxes as a Freelancer?

As a freelancer, you report your business activity on Schedule C when you file your personal income tax return. On Schedule C, you will list the income and deductions you claim for your freelance work.

However, there are other tax deductions you may be able to take when you freelance that fall outside of Schedule C of your personal tax return. Instead, these deductions show up on Schedule 1 of Form 1040.

• Self-employment taxes: The IRS requires self-employed individuals to pay 15.3% of their taxable net income as self-employment tax. Self-employment tax includes amounts paid toward the Federal Insurance Contributions Act (FICA) and Medicare. You can deduct 50% of what you owe in self-employment tax. Complete Form SE to calculate how much self-employment tax you must pay. Once complete, enter the self-employment tax deduction calculated on Schedule 1 – Line 15 of Form 1040.
• Self-employed health insurance deduction: If you qualify, you can deduct the amounts paid for medical, dental, and long-term care premiums on Line 17.
• Retirement contributions: You list deductible contributions to your SEP-IRA on Line 16. If you can deduct part or all contributions to your traditional IRA, report these on Line 20. 

doola Books Makes Filing Taxes Hassle-Free

You want to keep as much money in your pocket when you freelance. Taking advantage of every deduction can help hold onto more of your money while keeping your tax bill down. With doola Books, you can manage your finances with ease. Invoice customers, track expenses and attach receipts – all on one platform. Come tax time, doola Books gets you the information you need to make filing taxes a breeze.  

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