My favorite aspect of freelancing is that it allows you to work around the life you want to live, rather than creating a life around your work. Today, this is known as being a “lifestyle entrepreneur.” You build a business around the personal, day-to-day activities you enjoy by considering the amount of time you want to work and how, where, when and with whom — and then you determine your tax deduction strategy to enhance your lifestyle design.
Lifestyle design starts by pinpointing your areas of interest and passion, and building a life where these areas are at the forefront of your day-to-day, rather than becoming hobbies you do when you (sparingly) have the time.
For instance, my main passion is basketball. Instead of playing and watching basketball when I have the time, I’ve created a freelance business that allows me to coach a professional basketball team in Bangkok part time, while effectively running my personal branding and digital marketing consultancy from Thailand with clients in the USA, Europe, the Middle East and Asia. Since all of my work and systems are internet-based, it doesn’t matter where I’m located.
Curating Your Tax Deduction Strategy
Regardless of how you architect your work around the life you want to live, it’s important to understand that you’re still running a business. And, as with every business, we’re all legally obligated to pay taxes. As a lifestyle entrepreneur, the key to minimizing your taxes (while abiding by the law) is to find products and services that benefit both your personal and freelance lives and use them as deductions — creating your own tax deduction strategy.
“Deductions are purchases to produce income, such as office supplies; hardware like computers, cell phones and tablets; phone and internet bills; transportation related to doing business; and professional services,” says Jason Kassan, a partner at the Los Angeles-based accounting firm KPW. He continues, “The IRS says you can deduct expenses that are ‘ordinary and necessary’ in your industry. Meaning, would it be common for someone in your industry to have that expense? And is it necessary to run your business?”
Here are a few examples of how I leverage my lifestyle to minimize the taxes I’m obliged to pay:
1. Professional Services
Professional services are typically regarded as service-providers, like accountants, lawyers and notaries. But, in today’s day and age, business coaches can absolutely qualify as professional service-providers. I don’t have a business coach, but I do have a life coach. And, since much of our time is spent on business strategy, I can deduct the cost of those sessions.
If you’re like me, you use technology for both personal and professional reasons. Since cell phones and computers are integral to any freelancer’s way of doing business, you can also deduct related purchases, including chargers and adapters, SIM cards and cases and accessories.
According to Kassan, travel can be deductible as a business expense as long as there’s a clear business reason, like meetings or speaking engagements. Since I speak at all types of meetups and coworking spaces around the world about freelancing on behalf of my website, Epic Freelancing, I can deduct travel expenses, including airfare, lodging and transportation. My trick is deciding which cities I personally want to visit, and then finding local meetups where I can speak.
4. Retirement Plans
The equivalent of a 401k for freelancers is called a Simplified Employee Pension Individual Retirement Arrangement, commonly known as an SEP IRA. It’s here that I contribute up to $54,000 — or, the deductible limit for 2017 — to shield it from my taxes.
The indy life is fully customizable today thanks to the endless internet and all the niches where its users seek services. Once you’ve decided to strike out on your own, it’s time to start brainstorming how you can make this venture work for you, and keep working for you. Curating your lifestyle design is completely up to you, and the more you can deduct from your quarterly taxes, the more freedom you’ll have with all you earn and how you earn it.