We’ve all heard it before: being a freelancer gives you more freedom and flexibility. You can work from home, set your own schedule and even talk to clients in your pajamas. But, of course, you still have projects to complete and deadlines to hit. When you add in the idea of doing your own taxes, freelance life can seem overwhelming and, well, taxing.
Thankfully, by staying organized and tracking all of your tax deductions now, you can make tax season go a lot smoother. Bonus: You may even be able to reduce your taxable income so that you can keep more of your hard-earned money.
Here are five tax deductions you should start tracking now to get the most tax savings possible.
1. Office Expenses and Supplies
If you’re a freelancer who works remotely, office expenses can represent the largest hit to your budget. Thankfully, supplies like pens, paper, ink and other office items you purchase throughout the year for your business can all be claimed.
Other qualified office deductions include purchasing new hardware, software or mobile apps that keep your business running smoothly. And don’t forget to keep track of your business-related shipping and postage costs, too.
2. Licenses and Legal Fees
Do you pay an accountant to manage your books or file your taxes every year? Did you finally file for a business license or apply to become an LLC? The costs for these professional services can all be classified as tax deductions. But beware: If and when you are claiming the cost of accountants or tax preparers, you can only deduct the cost associated with the portion of your records and taxes that relate directly to your business.
Depending on your current field of expertise, you may be required to earn professional licenses that allow you to operate and conduct your business. And you’ll be happy to know that these costs can be claimed, as well.
3. Internet and Phone Expenses
Did you know that a portion of your utility bills, like internet and cell phone expenses, can be deducted? If you work at home and have a separate business phone line, the cost of that line is fully deductible. Do you use your personal cell phone for business calls, as well? Simply determine the percentage of each bill that’s related to your business and then deduct the corresponding amount. Similarly, you can deduct a percentage of your monthly internet bill. If you have your own business website, you can also deduct the cost of purchasing a domain name, and the cost of building and maintaining your site.
4. Transaction Fees
When collecting client payments, you may use an online payment system like PayPal or even process credit cards through a merchant service account. These services come with transaction fees that can be added up and listed as a tax deduction on Schedule C. If you sell products on platforms such as Etsy or Amazon, you can deduct these transaction fees, as well.
5. Self-Employment Tax
Similar to paying your portion of payroll tax as an employee, freelancers are required to pay Self-Employment tax (or SE, for short). When you work for yourself, this tax is made up of your personal Social Security and Medicare taxes, and it equals 15.3 percent. This figure breaks down into 12.4 percent for Social Security tax, and 2.9 percent for Medicare tax.
While this tax can seem high when it’s added to your personal income tax bracket, the IRS gives freelancers half of it back as an above-the-line deduction. And that’s key: The Self-Employment tax deduction reduces your adjusted gross income so you can pay fewer taxes.
If getting organized each tax season seems overwhelming and impossible, start tracking these five tax deductions now. When tax time rolls around, you’ll find yourself more prepared than you ever thought you could be. And, on top of that, you’ll already have a jump start on the tax deductions you can rightfully claim — saving you time and money. Who doesn’t love that?