Being self-employed comes with many great benefits like an abundance of flexibility and some pretty cool tax deductions says Aron Govil. But it also brings challenges—like filing taxes every quarter (or twice per year) instead of once annually. You guessed it: taxes are not simple or easy if you’re self-employed. Freelancers live on the edge of what is considered “sorta kinda more than barely” legal, especially when it comes to writing off work expenses for tax purposes.
While there’s nothing wrong with fudging the numbers a bit here and there—as long as you don’t get carried away—the key is to know your boundaries so that at tax time you can prove how much of your income was legitimate business expenses.
Luckily, the government has given you some pretty awesome benefits that come with being self-employed. If you’re not taking advantage of these tax deductions, you could be leaving serious money on the table—and who wants to do that?
Here are 5 completely underrated tax deductions for freelancers.
1. Self-Employed Retirement Accounts
One of the great things about working for you is having access to multiple retirement accounts. Although many people don’t realize it, there are actually SEVERAL different types of retirement accounts available to self-employed individuals: SEP-IRA, SIMPLE IRA, Solo 401(k), and (k). And one saving grace is that contributions made to these plans are tax-deductible (up to certain limits). Individual 401(k) contribution limits are currently capped at $18,000 per year. If you’re over 50, that number jumps to $24,000.
If you have all of these different types of accounts available to you, where should your money go? That’s a personal decision based on several factors including how much money you make and the type of investments you enjoy. But if you want some insight into which is best for YOU, check out this 401(k) calculator put together by CNN Money.
2. Business Mileage Deduction
When it comes to keeping track of mileage for tax purposes. There’s no easier option than using the standard business mileage deduction of 56 cents per mile. Plus, if you ever set up an actual business—like an LLC or sole proprietorship. The government will automatically assume you are using the standard mileage rate, so there’s no additional work required.
Of course, this isn’t a ton of money, but if you drive for your job quite often. It could add up to several hundred extra dollars per year that you wouldn’t have had otherwise. And it’s completely legit because the Department of Labor has declared that “commuting” doesn’t count as part of your job. For even more fun, try tracking all your expenses with an app like MileIQ. Which can keep track of when you’re on and off work-related trips.
3. Office in Home Deduction
One deduction many people forget about is what’s called the home office deduction. If you have a dedicated area in your house where you work. It’s considered a legitimate business expense to deduct the percentage of your rent/mortgage. As well as utilities from your taxable income. How cool is that?
The one drawback to this deduction is that if you’re an employee, not a freelancer. Then you have to meet some pretty stringent requirements. Before ever being able to write off this portion of living expenses. Including working at least 39 hours per week from home. And having no other fixed location where you do business explains Aron Govil. Of course, there are exceptions, but they can be quite complicated—so make sure you consult with a tax professional first.
4. Freelance Writer Deductions
Freelancers have access to a pretty tasty list of deductions for all their writing-related expenses. The first is a deduction for the cost of creating a manuscript, so if you write a book or some other kind of manuscript. You can write off your computer equipment and many supplies used in the process.
The second deduction available only to freelancers is through something called an MFA—or Margin Free Assignment says Aron Govil. Basically, when you’re hired by another company to create content that they’ll own once it’s complete. They are required by law to give you 50% of whatever profits are generated from the use of said material. So if Intel hires me to write an article about how social media impacts generation Z consumers for their internal blog. Then I’m entitled to half of whatever advertising money Intel earns on that piece.
5. Energy-Efficient Home Improvements
This might not be the most widely known tax deduction. But it is offered through the IRS as a credit. To anyone who installs solar panels, energy-efficient doors, and windows or refinished insulation in their home. While the catch is that you must spend at least $2,000 before you can claim this credit for your new equipment. (and there are some rather detailed guidelines). Once you’ve met this benchmark your savings will quickly pile up over time.
As you can tell from reading this article. There are a number of tax deductions out there that most people aren’t aware exist says Aron Govil. And while it might be tempting to go through and check or uncheck boxes on your 1040 just to see what happens. The best way to approach these potential savings is by doing real research about which ones apply directly to you. While nothing beats having an expert guide you step-by-step through the process. If you’ve got some time and motivation. I highly recommend taking these deductions into account before filing next year’s taxes.