Freelancers and side hustlers start should always be on the watch for easy tax deductions. It might sound like a topic that only applies to us once a year, but really it’s an all-year adventure. From saving receipts to tracking expenses, you can score easy tax deductions in several different ways.
The new IRS tax change doesn’t mean it’s harder to do side hustles or freelance. It just means you have to remember to always report your income. However, you can save a lot of money each year for your side hustles or freelance business by finding easy tax deductions.
When I say easy, I mean these deductions and credits are right in front of your nose. You don’t even need to keep track of your receipts to get some of these deductions I have in store for you.
Keep reading and I’ve got you covered with some easy tax deductions for people who do side hustles or freelance.
- What is a tax deduction?
- What is a tax credit?
- What do you need to keep a record of?
- Where can you file your taxes if you do side hustles or freelance?
- What are some easy tax deductions for side hustlers and freelancers?
- Bottom line: Tax deductions are worth it for side hustles and freelancers
What is a tax deduction?
A deduction is a portion of your taxable income that isn’t subjected to taxation if it meets specific qualifications or conditions. These qualifications or conditions are always business-related and are in this case are costs that you incur doing side hustles or freelancing.
Tax deductions exclude certain percentages of your taxable income from taxation. It doesn’t remove entire amounts of taxable income from being taxed. That would be a tax credit.
What is a tax credit?
Tax credits exclude specific taxable income amounts from taxation if they meet certain criteria. Once again, in our scenario we are referring to costs that come with running our side hustles or freelancing.
Credits are a bit more valuable than deductions because they exclude full amounts of income from taxation. For example, if you get a $500 tax credit for claiming a dependent then that $500 is deducted straight from the taxes you have to pay. However, if you deduct $1,500 from your home office, most likely you’ll only remove a third of that amount from the taxes you have to pay.
Makes sense? No? Don’t worry, hopefully it will as we proceed. If not, you’re not alone in this as a side hustler or freelancer.
What do you need to keep a record of?
Depending on your side hustle or nature of your freelancing gig, there are a couple things you’ll definitely have to keep a record of.
- Purchase receipts
- Invoices (sent and received)
- Supply receipts
- Gas receipts
- Wi-Fi receipts
- Subscription payments
- Business lunch receipts
- Tech receipts
Notice there are a lot of receipts in that list. Moral of the story: Save literally all of your receipts. Put them in your records and bring them out for tax day. After that, put them back in your records. These are important steps for filing taxes because the IRS is cracking down on selling platforms like eBay.
Where can you file your taxes if you do side hustles or freelance?
I like to file my side hustle and freelance taxes through TurboTax. It costs an extra $99 to do the business filing, but it’s worth it in my opinion. You can also try H&R Block if you’d like.
Many people suggest filing taxes with your CPA and if you have one you trust then great, go for it. However, instead of sitting in a stuffy accountant’s office and explaining your tax situation to a stranger who may－or may not－be judging you, you can file from the comfort of your laptop on your couch.
What are some easy tax deductions for side hustlers and freelancers?
Alright, now it’s time for the easy scores. All of these deductions should apply to your side hustle or freelance gig in one way or another. It doesn’t matter if you’re a reseller or online writer, look for these deductions and research them more in-depth to score a few easy wins this tax season.
Home office space
The IRS allows you to deduct $5 per sq foot in your home office space, up to 300 square feet. That’s a total of a $1,500 deduction just if you have a work office that you type in or pack boxes in.
There are two ways of filing this your home office space.
You could take the simple route, which is what I recommend, and deduct anywhere from 300 square feet or less depending on how much space you have.
Or you could take the standard option which consists of deducting utilities like gas and electric and more specific portions of your home, which can be bigger. The problem with this method is you have to come up with information explaining to the IRS how big your home is and other annoying information if they come knocking. That’s why I like the simple method. Easy to report and use.
Business supplies
Any business supplies you buy, you have to report. Get those deductions.
Are you a freelancer who wrote a book on Amazon? If it’s a print-to-order book then deduct the price Amazon is taking out of each book sale to create the book.
Are you a reseller? This is an easy one. Every box, sheet of bubble wrap, and ink cartridge needs to be reported. Cost of goods should also be reported.
I suggest using an excel sheet as you make sales and saving all of your purchase receipts, once again just in case the IRS comes knocking for audit season.
Business expenses
Business expenses are a bit different than business supplies. These are the expenses that it took to do business.
For resellers, this could be the cost of shipping for your items.
For freelancers, this could be the laptop you use to right on or even your subscription to Adobe.
Really try to think about the expenses you need to run your business on a daily basis and make sure to try and keep the receipts for it. Even the 2.9% PayPal fee you use to cash out is a business expense you can deduct.
Marketing costs
Marketing cost deductions are exactly what they sound like for freelancers and people who do side hustles.
Remember that one time you wrote an e-book and had to pay to market it with Amazon Ads? Or had to pay to get a graphic designer to create the cover? Huge deductions here guys, huge.
This one doesn’t count that much for resellers, however eBay’s promoted listings are technically a marketing cost you had to pay to make sales.
Internet and cellphone use
Deduct the internet and cellphone you use for business. Wi-Fi is essential to do most online deals and make sales. Technically, this could fall under the business expenses category but I wanted to highlight it on its own.
Charitable donations
The IRS will let you submit around $300 of charitable donations without a receipt or appraisal. After that, you’re going to need some kind of slip declaring how much you donated.
Charitable donations are an easy deduction you should think about for next year if you haven’t already made any donations. Pick your favorite charity and donate some money. Or you could donate clothes and goods to a nonprofit thrift store like Goodwill.
Bottom line: Tax deductions are worth it for side hustles and freelancers
Paying attention to your taxes and tracking your expenses is worth your time if you wanted to make extra income or start a business. Whether it’s through a side hustle or you’re a freelancer you’re going to want to make sure your taxes are in order.
It’s just another expense of doing business, but it can be lowered with deductions and credits. Freelancers and side hustlers looking for easy wins should check out these tax deductions to look for as a freelancer or a side hustler.
Also, learn how you can accept credit card payments as a freelancer.
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