Indianapolis Web Design Blog

5 Things I Wish I Had Known About Freelance Taxes: Part 4

Every year we’re taxed on our income - our “Taxable Income.” This is not the same thing as our “Total Income.” Just what defines the taxable income? Taxable income is our gross income minus any deductions.

To put it another way, you want to take advantage of all the deductions available to you to get that number down!

So what things should you be deducting? First off, ask your tax preparer if you have one. They are professionals and can help you with this. As I am not a tax professional, I’ll tell you what I’ve learned in my experience, rather than trying to give you an exhaustive guide.

Home Office Deduction
The biggest one that I always wondered about was the “Home Office Deduction.” After some research I found that you can’t claim an office unless it’s separated by some kind of permanent wall from the rest of your house, is your principal business location, and is used exclusively for business (and nothing else.) There are complexities to this (as with all things related to the IRS). I have never been able to meek these requirements though, because I do not have a room that is exclusive to business. This means that within my office there is regular home-type activities going on: storage, bill-paying, and an internet usage. There is another reason that I’ll cover in the next installment: it increases the chance of being audited.

Supplies
This is so obvious that I probably don’t need to mention it. Deduct everything that you need to run the business. Pens, paper, ink, cell phone, etc.

Insurance
Pay health insurance? Part or all of it could be deductible.

Printed Materials
Business cards, envelopes, etc. If you need to print a poster to sell your latest brainstorm, then that Kinko’s receipt is deductible. Hang onto it!

Babysitting
Don’t forget about that! Care for your little one does help you work, and it does cost money. You’ll need all receipts on this, including info such as the tax id of the company or person doing the babysitting.

Automobile
If you’re driving around to meetings and such, then you can claim your mileage. If you’re making payments on your car, then you can claim depreciation and maintenance.

Parking Fees
Yes, if it costs money to go to a client’s office to meet, you better believe that’s deductible. Does this include parking tickets? That is a question for your resident tax preparer :)

Professional Services
This is another one that is probably obvious. If you need to pay a programmer to build you a cool web 2.0 Ajax-empowered web widget, then that cost if deducted from you gross income.

Gifts
Yes, we all have to schmooze. Deduct those gifts, but only up to $25 per person. At costs beyond that, you might decide to call it “Advertising.”

Keep your records!
One thing to keep in mind is that you should keep all of your records, and keep them organized. The IRS is serious about tracking down deduction abuse, and you want to watch your paperwork. I keep my records in an excel spreadsheet, including a folder with the hard copies of the receipts in chronological order. It takes almost no time to add a record and file the receipt, so there is no excuse.

This blog post is not intended to be specific tax advice. For tax advice, go consult a professional.

• Read Part 1
• Read Part 2
• Read Part 3

Stay tuned for Part 5:
How do you avoid an audit?

This entry was posted on Saturday, February 10th, 2007 at 9:23 am and is filed under Freelance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.