Tax season. It’s right around the corner, and the last thing you want to do is pay up.
The good news is there are a lot of ways to lower the amount of tax you owe. Deductions and credits come in handy, and if you’re a freelancer there are even more costs you can write off as business expenses.
Freelancers often have to pay for things that salaried employees get from their office job: office supplies, a place to work, company-sponsored travel, and more. But for freelancers, these are the sorts of items that you can write off to make the difference between owing a lot or owing a little – or even getting a refund.
So what do some of our favorite personal finance bloggers – who count their blogging as freelance work – do to save on their tax bill? We asked.
Home office deductions
If you work from home, home office deductions are a great way to lower the amount you’ll owe when you file your taxes.
And it’s not just the things you use solely for your business, like an office desk, that you can write off. You can write off portions of larger costs that you use for work. That’s what Talaat and Tai of His & Her Money do.
The personal finance couple write off things like "electricity, gas, internet and even our cell phone expenses," they told us. "Most bloggers don't realize that you can write off certain expenses such as these."
Keep in mind that you can’t write off entire bills for your home; you’ll need to do a little math and figure out what proportion of a utility you use for your office and then write off that amount. Still, it can all add up and you can end up saving yourself a huge chunk of change.
Writing off travel, conferences, and dinners
The savings continue even when you leave the home office.
"I don't do my own taxes and it's handled by an accountant," Phroogal’s Jason Vitug admitted, because his income comes from speaking gigs and other sources besides blogging. But he did tell us that he writes off a lot of things when he’s traveling.
"Cost of conference ticket, travel, lodging and other expenses associated with the conference," are all eligible tax deductions for freelancers. Jason also said that this will sometimes "include dinner or drinks with potential new clients as a business development/promotional expense."
If you’re writing off these things – and you definitely should – be aware of a couple of IRS guidelines.
First, "you cannot deduct expenses that are lavish or extravagant under the circumstances." That means trying to avoid five star restaurants if you can.
If you’re entertaining a potential client, it has to be directly related to attempting to earn their business: there needs to be "more than a general expectation of getting income or some other specific business benefit at some future time."
Finally, for meals and entertainment, you can typically only deduct 50% of the cost.
Greg Johnson of Club Thrifty takes advantage of home office deductions, too, and since "a large portion of my income is earned directly from travel blogging, I'm able to deduct all kinds of work-related travel expenses. Plane tickets, hotel rooms, rental cars, and entrance fees to tourist sites can all be deducted as long as I'm there for the purposes of my business."
Greg also focuses on one particular deduction: technology. He told us that he tries to write off "any technology expenses or repairs I incur. So, the cost of computers, internet service, and business related cell service."
The repair note is key. If you’re using a piece of equipment for work, you can write off the repair expenses. Vehicle expenses are also fair game – things like upkeep and mileage – and the IRS has a depreciation deduction for when your physical items wear down as "an allowance for the wear and tear, deterioration, or obsolescence" of objects.
Looking forward to retirement
Frugal Rules’ John Schmoll deducts what he can from his business expenses, from "hosting fees for our websites to annual fees for our business credit cards," but he told us that his "favorite tax deduction as a blogger is for retirement savings."
"My wife and I have a Solo 401(k) plan and that can provide a lot of value as we get to save for retirement and get a nice deduction," John said. "We do the same with savings in our HSA plan so we can double dip on the savings and tax deductibility."
Savings products with tax benefits, whether it’s for retirement, like a 401(k) or an IRA, or medical expense accounts like a health savings account or a flexible spending account, are a great way to save on taxes. You can lower your taxable income amount or get get money to spend tax-free or, in some cases, both.
Not all of these products are available to everyone – Solo 401(k)s are for freelancers, and HSAs are only available to people with high deductible health insurance plans – so you should find out what you’re eligible for and take advantage of it.
So for all you freelancers out there: what’s your favorite thing to write off when you’re filing taxes?