It’s tax time again. As freelancers, April 15th one of four big days we need to pay attention to from a business perspective. Why four? Because unlike our corporate counterparts, freelancers need to pay estimated taxes on a quarterly basis. If you’re only just now getting your freelance tax act together, this article will show you 5 last-minute freelance tax deductions you may not have considered yet.
Disclaimer: These are suggestions based on my three and a half years as a successful freelance writer and web consultant. Please consult a tax professional for your specific tax needs.
Tip #1: Books and Subscriptions
If you work as a writer, designer or other creative professional, all those books and subscriptions you bought to help keep your skills current are tax deductible. These should go on your Schedule C under Other Expenses and itemized in part V.
Tip #2 Mileage For Client Visits
If you work from home but occasionally need to visit clients at their place of business, you can deduct 55 cents per mile in 2009, plus any costs for parking and tolls. Make sure you keep a detailed journal of all business-related mileage plus a record of the overall annual mileage you put on your vehicle.
Tip #3 Shelter Your Profit With A SEP Retirement Plan
A SEP (Simplified Employee Pension) plan is very similar to a traditional IRA, and a great way for freelancers to shelter 20% of schedule C net income up to a maximum of $49,000 in 2009. If you haven’t opened an account yet, you have until April 15th to do so. Once in place, you or your representative will be responsible for directing investments and maximizing contributions.
Tip #4 Deductions For Internet Access and Other Communications
Many home-based workers use a dedicated cable or DSL internet connection for business purposes, while others use a household service that is bundled with household telephone and television services. Whichever you use, make sure to deduct the portion used for business. Don’t forget to include monthly data plans for smart phones or backup networks such as laptop network cards.
Tip #5 Home Office Deduction
If you work from home as a freelancer, you may be able to deduct expenses related to the business use of your home. These expenses can include mortgage interest, insurance, utilities, repairs and depreciation. The home office deduction isn’t just for homeowners – you can take advantage of it even if you rent.
To qualify, make sure you pass these two requirements: 1) You must regularly use part of your home exclusively for conducting business, and 2) you must be able to demonstrate that your home is used as your principal place of business. Most home office deductions are based on the percentage of your home used for business, so you’ll need to figure out the amount of space dedicated to your business. For example, if your home office takes up 250 square feet of a 2500 square foot home, you can deduct 10% of all qualified costs. But be careful with depreciation, as you’ll need to recapture it upon the sale of your home.
Pay Your Taxes, But Don’t Pay More Than You Have To
Deductions can mean the difference between profit or loss in your small business for a given tax year. The IRS knows you’re in business to make money, so if you show a loss over multiple years they will classify your business as a hobby rather than a going concern. Take your deductions honestly, but don’t pay more taxes than you have to.