As a creative freelancer, you just want to do your work and get paid. That's why you turned to freelancing in the first place, right?
The problem is, a lot of freelancers have never had to deal with self-employment tax before — and if you don't educate yourself on the rules, along with the various tax credits you're now entitled to, you might end up giving Uncle Sam more than his fair share. Worse, you might not give him enough of his fair share, and end up looking down the barrel of an auditor's pen.
If you haven't already, talk to a tax professional to make sure you stay on the IRS's good side — and remember to ask if you're eligible for the following tax deductions:
Office and Utilities
You might worry that claiming your home office as a deduction on your taxes paints a target on you for your auditor...but the key is in following the rules. In order to stay out of hot water, the space you use for your home office has to be used only for your business. This means that you can't deduct your living room that has your family computer in it.
You may also have to show proof that no one else in the house is using your computer and office space — which can be difficult if you have kids and only one desktop machine.
If you can show that you use the space solely for business purposes, then you can deduct the percentage of your home's square footage that makes up your office. You'll also be able to deduct a percentage of your utilities.
On the other hand, if you rent or own an office outside your home, you can deduct 100% of your utilities. You'll also be able to deduct phones used for business.
Health Insurance and Retirement
As long as you're not eligible for any employer-provided health plan (including your spouse's), you can claim your monthly health insurance costs for you and your family.
And while it's not technically a deduction, you can choose a tax-deferred retirement account that will reduce your tax load. As of 2011, you could contribute up to $49,000 to a solo 401K plan. Depending on the plan you choose, you may need to be enrolled by a certain date in order to qualify for tax deferment. Your tax professional will be able to shed more light on the rules.
Keep receipts for all of your business-related supplies, such as pens, envelopes, desks, and other furniture and equipment.
As for your laptop and tablet...you can deduct them if you use them strictly for freelance work. But if you use them partly for business and partly for personal use, you can only deduct the percentage of their business use. And, again, if your household has just the one laptop, it'll be on you to prove that you only use it for business.
These are just a few of the credits you might be eligible for as a freelancer. There are many more that may apply to you (mileage for traveling to and from meetings, taking clients to lunch, hotel costs for business travel, etc.), so make sure you thoroughly discuss your options with your tax preparer.
By knowing what you can legally claim, you can keep more of your money out of Uncle Sam's hands — without getting that dreaded letter or phone call from the IRS.
Freelance blogger Angie Mansfield covers a variety of subjects for small business owners. From business growth to marketing to how to make a budget, her work will give you tips to keep your business running smoothly.
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