Top Tax Tips for Freelancers

Jodee Redmond
tax forms

Taxes are something that everyone has to deal with, but knowing the top tax tips for freelancers will help you to get ready for tax time.

5 Top Tax Tips for Freelancers

Educate Yourself About Taxes

Whether you have an accountant prepare your taxes, use a specialized software package for this purpose or prepare them using a printed form and a pencil, take the time to learn about how income tax laws apply to people who are self-employed. There are many books and web sites that will provide you with the facts you need to maximize your deductions and minimize the amount of tax you have to pay. The Internal Revenue Service (IRS) web site is a good source of information for freelancers. The site includes information about starting a business, which business expenses are tax deductible and how to keep records of income and expenses. The IRS also provides information about choosing an accounting method and how to close down a business if you decide to stop your freelance activities.

Report Income from All Sources

Not all the clients you work for will issue a 1099 form at the end of the year for income tax purposes. A 1099 form indicates the amount of money paid to a freelancer or a consultant by a business. A copy of the form is forwarded to the IRS for their records.When the freelancer reports his or her income, it must be equal to or more than the amount showing on the 1099 forms files on his or her behalf. If the figure is less than this amount, the IRS will issue a notice to the freelancer that he or she is being audited.

Know Which Expenses are Tax Deductible

A number of expenses incurred when running a freelance business are tax deductible. Here is a partial list of tax deductions if freelancing:

  • Advertising (including business cards, fees paid to place ads, Internet marketing campaigns)
  • Books
  • Computer
  • Home office expenses
  • Insurance (business insurance and/or life insurance)
  • Internet fees
  • Meals
  • Office expenses
  • Office furniture
  • Professional fees (legal, accountant, etc.)
  • Rent (for office space)
  • Repairs and maintenance
  • Software
  • Subscriptions
  • Telephone (business portion)
  • Travel expenses (must be business related)
  • Utilities
  • Web development

Health insurance premiums paid by freelancers can be deducted as a business expense.

Include Home Office Expenses

One of the top tax tips for freelancers concerns having an office in your home. Rather than deducting a certain amount for renting office space from your income tax return, you can deduct a portion of the expenses incurred in running your household. The portion that is deductible can be a percentage of the total square footage of the home. Another way of calculating the amount that can be deducted is to add up the number of rooms in the house. For example, if the house has a total of nine rooms, the home office expenses account for 1/9 of the cost of utilities, property taxes, mortgage interest, repairs, etc.

Keep in mind that home office expenses may not be used to create a business loss. In fact, declaring an ongoing business loss on taxes increases the chances that a taxpayer will be audited.

Keep Receipts for All Expenses

The IRS allows freelancers to deduct any reasonable expenses incurred to run the business. It's not enough to make a claim for these expenses, though; the freelancer must be able to provide receipts for them in case he or she is audited. Without the receipt to back up the claim, the expense will not be allowed. The freelancer's business expenses can be tracked using a simple spreadsheet or an accounting program like Quickbooks. Using one of these methods means that the freelancer can get accurate totals for his or her expenses.

Top Tax Tips for Freelancers