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6 Freelance Tax Deductions & Benefits for the Self-Employed

November 5, 2024

It doesn’t matter if you’re new to freelancing or if you have made your living as a self-employed individual for years, there are some tax deductions to know. There are only certain expenses that you can claim as a freelancer and others that are not deductible.

There is also a pass-through tax deduction that can impact your tax return at the end of the year. So, it can be important to understand what business expenses you can claim as a self-employed worker when you submit your taxes. Here are some self-employment tax deductions and benefits for the self-employed.

These topics will make you an expert on job-related tax deductions for freelancers:

What Expenses Can You Claim as a Freelancer?

What Is the Pass-Through Tax Deduction?

Key Takeaways

What Expenses Can You Claim as a Freelancer?

When you’re self-employed, such as being a freelancer or independent contractor, you’re always going to be looking for ways to reduce your taxes, and understanding the specific tax deductions for independent contractors becomes crucial. The good news is that there are business expenses that you can claim as a freelancer. However, not all business expenses are eligible for deduction, and tracking these can be challenging. For guidance on managing this aspect of your finances, consider following our guide, Expense Tracking for Freelancers, which will assist you in tracking them effectively.

Here are 6 expenses that might be entitled to claim.

1. Credit Card Interest

If it’s business-related you might be able to deduct your credit card interest when you submit your Form 1040 federal tax return. If you still aren’t sure if your credit card purchase is business-related, just ask yourself if it’s ordinary and necessary to operate your business.

If it is, then the IRS qualifies it as a business purchase. These can also include your cell phone, meals, salaries and wages and utilities, among others.

To streamline this process, consider using the best tax software available to ensure accurate tracking and categorization of deductible expenses.

2. Home Office Expenses

There are a few things worth noting about home office deductions. The first is that if you’re employed by a business, then you can’t make any home office deductions. However, if you are self-employed and use an area of your home then you might qualify for certain deductions, such as office supplies.

To qualify for home office deductions you need to meet two different requirements.

You must use your home office exclusively and regularly, which basically means that it can only get used for business purposes
It needs to be your principal place of business, which basically means that it’s where you conduct meetings or do all your work.

So, if you don’t regularly use your home office or you usually have your meetings somewhere else, you might not qualify for the home office deduction. If you qualify, you can claim home-related expenses only. Which can include mortgage interest, rent, insurance and utilities, for example.

3. Training Programs and Educational Expenses

No one is an expert in everything, and sometimes you need to take certain training or educational programs to learn something new. And If they are work-related education expenses then you might be able to deduct them on your tax return. Essentially, your payment needs to be for educational purposes that either maintains or improves your ability to do your work.

For example, you might work as a self-employed marketing consultant. If you take a certain marketing course to improve your skills then you might be able to claim it as a tax write-off. You can also deduct other things such as books, tuition, supplies and transportation costs.

4. Health Insurance Premiums

Health insurance and other benefits are usually some of the biggest perks of working for larger companies. But health insurance for freelancers or self-employed can get costly. That said, you might be able to deduct certain things from your taxes.

Health care insurance premiums that you pay for yourself, spouse, dependents and any children under 27 are deductible. You need to report a net profit to use this deduction. But even if you don’t you can claim premiums as itemized deductions on your Schedule A Form 1040 federal tax return.

5. Business Mileage and Business Travel Expenses

Sometimes you need to use your personal vehicle for work purposes. You can deduct your mileage from your taxes, but it’s important to distinguish between personal and professional trips. So, if you use your vehicle for personal and business purposes, you can only deduct the business mileage.

The standard mileage rate is .67 cents per mile and you can multiply that rate by the business miles that you drive. To claim the standard mileage rate as a deductible expense you need to meet a few different conditions.

You need to own or lease your car
You can’t operate more than 5 cars at one time
Depreciation must not have been claimed on your car

Business meals and some other travel expenses might be deductible. Just make sure they’re an actual business expense and not personal expenses.

6. Deductible Taxes

The main thing you need to keep in mind when deducting your taxes is that you need to claim them in the year that they got paid. This means that it’s important to make sure that the payments you make and taxable income calculations are accurate. You can consult a tax professional if you need some assistance in putting everything together.

But, as a self-employed person or small business owner, there are some things that you can deduct. These can include employment taxes that get paid from your own funds or real estate taxes that get assessed by your local or state government. Check the IRS website for a full breakdown of deductible taxes.

What Is the Pass-Through Tax Deduction?

The pass-through tax deduction is a tax cut that’s available to small businesses and freelancers. It can also be known as the Qualified Business IncomeDeduction or the IRS Section 100A deduction. Basically, it applies to households who have pass-through income as a result of their small business.

This can include being a sole proprietor, LLC, partnership and S corporation. Pass-through income refers to a business that has earnings that aren’t taxed at the corporate tax rate. Instead, the income passes through into the small business owner’s personal income tax return.

The deduction allows freelancers and other small business owners to reduce as much as 20% of pass-through business income. At the end of the day, this can add up to huge savings for a lot of small businesses.

Also Read: What Expenses are Tax Deductible

Key Takeaways

Knowing and understanding some of the expenses that you can deduct as a self-employed person can help save you money. However, there are only certain expenses that can get deducted. So make sure that when you submit a claim it’s for a business-related expense and not for personal use.

These can include expense claims for credit card interest, some home office expenses and travel expenses. You might also be able to deduct certain health insurance premiums and training programs. Just make sure the training programs maintain or improve your ability to do your work.

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