When it comes time to file your return, you likely know to take advantage of the typical freelance tax deductions — such as those related to office expenses and supplies, car mileage and business travel. But these aren’t the only costs you can claim each year. Here are three tax deductions you may be able to take advantage of the next time tax season rolls around.
Take All the Tax Breaks You Can Get
Anything you can do to minimize your tax burden will help you keep more of your hard-earned income in your own pocket. That’s a big deal for any freelancer, but especially for those who are just starting out.
Maximizing your profit is essential: It’s what allows you to not only pay yourself, but to reinvest in your freelance business so you can continue to grow.
If you don’t take all of the deductions for which you qualify, you’re paying more than you have to when you send your taxes off to the IRS. To avoid that, make sure you consider these three freelance tax deductions that many people forget to deduct — and claim them if you can.
Any costs you accrue to advertise your service offerings could potentially be incorporated into a deduction. According to the IRS, “You generally can deduct reasonable advertising expenses that are directly related to your business activities.” This messaging is a little vague, but it’s a good rule of thumb. Essentially, an expense qualifies if you can show a connection between your method of advertising and its ability to reach consumers or effectively share information about your products or services.
This could include what you normally think of when you hear the word “advertising” — like ads in print magazines or online. But it might also include the costs you paid to run contests on social media to increase your reach or brand awareness, or a fee you paid to be featured at an event where the audience included potential clients in your target market.
2. Membership Dues
Joining professional societies and associations can give your freelance career a big boost. From networking opportunities and a supportive community to resources and education, relevant groups can provide you with a variety of tools to help you get more business and boost your bottom line.
And those fees you paid to become a member? They might be tax-deductible, too. According to the IRS, “you may be able to deduct dues paid to professional organizations (such as bar associations and medical associations) and to chambers of commerce and similar organizations, if membership helps you carry out the duties of your job.”
If you’re just getting started in your freelance career, you might borrow money to help cover your upfront and startup costs. The interest on any business debt or financing you used can be deducted when you file your taxes.
If you own and work out of a home office, you could also deduct your mortgage interest, but you need to be careful how much you claim. Technically, this expense is part business and part personal, so you can’t deduct the full amount of your mortgage interest as a pure business expense. According to the IRS, your mortgage interest can be bundled into the overall expenses of your home office, alongside “insurance, utilities, repairs and depreciation” — but you’ll need to determine the percentage of your home that your office takes up in order to calculate the correct deduction.
Ask a Pro to Check Your Freelance Tax Deductions
As a freelancer, you inherently have a more complicated tax situation than someone who has an employer and earns a W-2 income. So rather than trying to do your taxes alone, consider working with a professional — especially when you first start out.
Reach out to a CPA who can double-check your numbers and deductions before you file. Sure, investing in a pro is another expense, but it allows you to avoid having to pay the fees and costs that could potentially come from mistakes and missed opportunities — like deductions you didn’t claim.