The 20 Most Important U.S. Tax Benefits and Deductions for Freelancers
As I made the transition to freelancing, I learned that the United States IRS allows freelance business owners to utilize several business expenses and tax deductions that are not commonly allowed for business employees. Below is a list of 20 potential tax deductions that may be an option for freelancers in the United States, based on advice and information I’ve learned along my freelancing journey. I am not a lawyer or tax professional. Speak to your accountant or tax professional to identify if any of these options could apply in your situation.
1) Workspace or home office deduction
If a freelancer operates their freelance business from their home, they may be able to deduct part of their rent or mortgage payment under the home office deduction. To qualify for this deduction, a freelancer must designate a room in their house or apartment for exclusive use as a “home office.” The deduction may be calculated by measuring the approximate square footage of the home office and dividing it by the square footage of the entire house or apartment. This is the percentage of the monthly rent or mortgage payment that may be able to be deducted.
Freelance business owners may deduct utilities as a business expense for their business location or home office. The percent of utilities deducted for home offices should be proportional to the business and personal usage.
If a freelancer uses their phone for both work and personal use, they may be able to deduct part of their phone bill as a business expense.
4) Internet service
Internet service used by the business may also be deductible as either an office expense or utility expense. But, if that internet service is also for personal use, freelancers may only be able to deduct a portion of the total bill.
5) Office supplies
Businesses may be able to deduct the cost of the office supplies bought for use by the company, like paper, pens, staplers, printer ink cartridges, etc.
6) Upwork membership and service fees
Freelancers that work with clients on Upwork may be able to deduct any membership and service fees as tax-deductible business expenses.
7) Business technology and equipment
Larger items, like a computer, could also be deductible when purchased for a business. When a business owner buys an expensive item, they may be able to deduct the entire purchase all at once or spread the deduction out over several years, a process known as depreciation. Most people find it easiest to take the deduction all at once. However, if a business owner thinks their income and tax bill may be higher in the future, it could be worth spreading the deduction out over time.
8) Business travel expenses
Business owners required to travel out-of-town on business-related trips may be able to deduct travel expenses like flights, hotel rooms, car rentals, and meals. To deduct these expenses, they need to be traveling somewhere for business, such as seeing a client or attending an industry conference.
9) Advertising and marketing
Expenses related to advertising your business could be tax deductible. There are many marketing and advertising activities that may be eligible for a deduction, including print, web, TV, and radio ads, promotional materials, public relations, advertising collateral, direct marketing, and promotional events.
10) Business website
If a freelancer has a website for their freelancing business, the costs of designing, developing, launching, updating, and hosting the website could be deductible business expenses.
11) Membership dues for business and continuing education organizations
The membership dues and fees for organizations that help with business operations or provide continuing education related directly to the business may be another deduction.
12) Health insurance
Self-employed workers like freelancers may also be able to deduct their health insurance premiums. Costs to cover the freelancer and their family may be claimed as a deduction against the freelancer’s personal income.
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13) Liability insurance premiums
Freelancers may also be able to deduct the insurance premiums for liability coverage to protect themselves against a lawsuit. If a freelancer pays for workers’ compensation insurance or state unemployment taxes, these expenses may be deductible as well.
14) Retirement plan contribution
Self-employed freelancers typically won’t have access to a work-sponsored company retirement plan like a 401k unless they go through the expense of setting one up for themselves. Fortunately, as a freelancer, it may be possible to set up a SEP IRA, a retirement plan for self-employed workers and other small business owners. With this retirement plan, the currently permitted maximum amount a freelancer can contribute is $53,000 a year, depending on income. Every dollar put into a freelancer’s SEP IRA can help save for retirement while also potentially lowering their tax bill.
15) Transportation and mileage
Freelance business owners may be able to deduct the costs of business-related transportation, such as using their car for traveling to and from meetings with clients, running business errands, and attending business events. Remember to keep a detailed log of mileage, maintenance, repairs, and fuel with all the receipts for the costs associated with using a personal vehicle for business use.
16) Start-up expenses
If this is the first year in business, it may be possible to deduct start-up related expenses such as market research or evaluating the purchase of an active business.
17) Tax preparation and accountant fees
When filing taxes as a self-employed freelancer, it’s highly recommended to have a trained tax professional prepare the return. This may help avoid costly mistakes and often pays for itself as an accountant could help make sure valuable tax benefits are not overlooked. Even better, tax preparation fees may be tax deductible as business expenses.
18) Loan interest
Interest paid on a bank loan for a business may qualify as a tax-deductible business expense.
19) Software and online tools
Freelancers who require online tools for their business or computer software may be able to deduct the programs’ purchase or monthly subscription cost. Below are some common software programs that may be eligible for a deduction if they’re necessary for business operations:
- Microsoft Office
- Adobe Creative Suite
20) Organizational costs and attorney fees
Organizational costs and business attorney fees may also be eligible as deductible expenses associated with the registration, incorporation, documentation and agreement creation, and organization of a corporation, partnership, or limited liability company.
Tapping into any of these 20 potential deductions that you may be eligible for as a freelance business owner may give you the opportunity to have more money left over to invest back into your business.
To reiterate, I am not a tax, financial, or legal professional. This article is not intended to be legal, financial, or tax advice. Instead, I am sharing my thoughts merely to get freelancers in a similar position as myself to consider the importance of business deductions that may be able to lower their income tax burden. Consult with a licensed professional for advice on your individual situation.
Although this list of potential freelancer business expenses addresses only deductions for freelancers in the United States, many other countries have tax breaks and other incentives available for small businesses. It’s a good idea for every freelancer to speak to their business advisors for personalized recommendations.
The views and opinions expressed in this article represent the opinions of the freelance author who is sharing their own views based on their experience. The author is not a lawyer or tax professional and does not intend to provide tax or legal advice, but as general information for educational purposes for freelancers in the United States. Given that the needs and circumstances of each individual business differ, the information provided in this article may apply to some businesses and not others. Upwork does not provide any legal advice, and as always, independent professionals remain responsible for complying with all laws and legal requirements in operating their freelance business.