If you left your job in 2016 to become a freelancer or have been working for yourself for years, this year has likely been filled with its share of ups and downs. Self-employment and working from home certainly have their perks, such as no commute and working in your pajamas. They also have their challenges, like dealing with isolation and remaining focused on work instead of that load of laundry.
With income tax season right around the corner, it’s time for another challenge: organizing your year-end finances in preparation to file your 2016 taxes. For both first-time and veteran solo entrepreneurs alike, this task may seem daunting. Yet, once you know more about tax deductible expenses, filing your taxes in 2017 will be a snap and you won’t be as tempted to wait until the last minute. Here’s how to find and take advantage of tax deductions that can save you thousands this year:
If you’re new to working from home, you may think that you can only write off a separate home office. The reality is you can allocate a corner of your dining room or an area of any room as your work space. According to the IRS, you can deduct a portion of your rent or mortgage for the room or space that you use exclusively for business purposes. For example, my home office square footage equates to about one-eighth of the total square footage of my house. This means that I can deduct about 12 percent of my mortgage.
Utilities and other related costs
Just as you can write off a percentage of your mortgage or rent for a home office space, you can often do the same for utilities and other household bills, such as electricity, gas, cable, and even your cell phone bill. Just make sure you keep accurate records as you can usually only deduct the amount of these bills used to conduct your business.
Home office supplies, equipment and furnishings
While we’re on the subject of a home office, you can also deduct expenses related to the purchase of home office supplies and computer equipment, as well as furniture. This can include big ticket items like a new desk, ergonomic chair or laptop, as well as smaller everyday office supplies like printer paper, notebooks, paper clips or anything else you need to run your business. Because it’s almost the end of the year, you may want to run out and buy expensive items now. This way you can deduct these purchases from your 2016 income.
Advertising and marketing
As a newly minted freelancer without a storefront, you may have created branding materials to help kick off your business, including business cards, brochures and flyers. These are typically tax deductible. Likewise, so is online advertising through Google AdWords, Facebook and Twitter. To that end, if you use a paid email platform, like Constant Contact, this is also a form of marketing and the associated costs can often be deducted from your total income.
This is an expense that is often overlooked by freelance newbies. If you have any type of insurance that extends to your business, it may be tax deductible. This includes insurance paid for liability, theft, worker’s compensation, malpractice, disability, and possibly health insurance premiums. For example, I carry fitness liability insurance as I teach yoga classes on the side. When I used to operate a home-based yoga studio, I also had an umbrella policy, which offered my business an extra layer of financial protection on top of my property insurance coverage.
Legal and other professional services
If you hired a lawyer to help you incorporate or a bookkeeper to manage your accounting, you can usually deduct these fees. In addition, don’t forget about expenses related to hiring a web designer, marketing consultant, business advisor or other service professional.
Do you use your car to visit clients or meet prospective customers? If so, you can either claim the actual car expenses related to your business or the amount of miles you’ve driven during 2016. This may include gas costs for traveling to business-related events and meetings, as well as expenses related to oil changes, maintenance costs, and repairs.
While this list gives you a headstart when preparing to file your taxes this year, it’s also a good idea to research other options for your particular type of freelance business. Does your business allow you to make deductions for meals and entertainment, travel or educational costs? One recommendation is to seek professional advice from an accountant or tax advisor to find out more. An expert can take a look at your business and help you understand available tax deductions.
And remember: paid advice from an accountant or tax professional is tax deductible.