Many of us only think about taxes once a year: During tax season. In reality, it’s an entire year’s worth of work. Easy tax deductions for side hustlers and freelancers are part of a tax-focused mindset.
Having a tax-focused mindset throughout the year is how you can really save money on tax day. You’re always going to owe some money to the IRS, but let’s try to save ourselves where we can.
Also, by viewing our taxes as a year-round process, expenses that arise as a freelancer don’t seem as bad. All of a sudden, a new work laptop is less of a financial burden because it’ll save some money when deducted on tax day.
If you’re in the process of doing your taxes as a freelancer or side hustler, keep some of the following ideas in mind. Also, take note of them for tax day next year.
Disclaimer: I am not a tax expert and this isn’t tax advice. Consult a tax expert for tax questions and filing opportunities.
Home office space
Deducting home office space is one of the biggest and best deductions. As a freelancer, I suggest going with the simple home office deduction instead of the itemized one. It allows you to deduct $5 per sq. foot up to 300 sq. feet.
Home office space can be precisely calculated with your tape measure or it can just be an estimate.
Since this is a deduction — not a credit — the money from your home office space is subtracted from your gross income to figure out how much tax is owed. Sound confusing?
Here’s an example: Let’s say the IRS has you down for $5,000 in taxabale income. If you deducted the full 300 sq. feet from your home office space then you would subtract $1,500 from the $5,000 and the other $3,500 would be your taxable income.
To make this deduction work, your home office space can only be used for work. Nothing else. According to the IRS, you can’t even have a dog bed in your home office because it should only contain work supplies.
Any supplies you need to make your side hustle or freelance gig work can be deducted. This means stuff like paper, laptops, printing supplies. Most supplies you purchased for your business can be deducted.
This is where side hustlers like resellers can really save some money. From cost of goods to printing and shipping supplies, all of that comes into play here. Just make sure to save your receipts!
Those of us who write e-books and self-publish them on Amazon, remember you pay a portion of each sale to have the book printed. That printing cost can be deducted! It’s a cost you pay out of your royalties.
For online freelancers, this deduction might be limited. Claiming your laptop is a solid move, but make sure to reference the IRS’ depreciation page to help determine how much can actually be deducted.
You can also claim website hosting costs if you own a site.
You know that stupid 2.9% fee PayPal charges you to receive money? If you send out your invoices for client work via PayPal then you can deduct those payment fees.
This is a lowkey deduction I never learned about until recently, but it’s awesome. The best part is you don’t have to worry about keeping these receipts, they should be accessible in your PayPal account.
If you’re sending money with a credit card, you can write off those additional transaction fees as well.
Marketing and advertising costs
If you paid money for Google Ads, Amazon Ads or any other ad services, those payments can be deducted.
Once again, this makes buying advertising space less of a pain because you know you’ll be able to deduct them later down the road.
The same goes for marketing costs. E-book covers, website designs, logos, etc. Save those Fiverr invoices and report them to the IRS!
Report and dedut your internet expenses. Of course, you can’t deduct the full bill because you likley use your internet for other things.
I was able to deduct 50% of my interent bill because about half of its use was for business purposes.
Education and software
I purchased online courses, business e-books and other educational materials for my businesses that I was able to deduct this year. Deducting educational expenses, memberships (if they are necessary to conduct business) and similar expenses is allowed.
Paying for Adobe’s creative suite software is another deduction that applies in this section.
This is a common deduction many people get wrong. You have to be doing business to deduct work meals. This could mean taking clients out to eat or paying for employees to eat while discussing work.
For these reasons, I did NOT deduct any work meals this year. I worked with writing clients but didn’t pay for any meals while we did business.
Don’t be afraid of tax season
With the new tax rule from the IRS, I’m seeing many side hustlers and freelancers quit their gigs. It truly saddens me because doing your taxes isn’t something that should put an entrepreneur out of business. Taxes weren’t designed for that.
The IRS wants businesses to thrive, they just want their taste of the income. That’s why they are cracking down on selling platforms and requiring eBay to send 1099 forms to sellers.
Learn a similar idea when we cover freelance payment terms and methods.