In order to keep this site going (at no cost to you!) this guide may contain affiliate links.
Being your own boss is pretty freaking great, at least until tax season rolls around.
Owing money to the IRS is never a fun process but you can ease the pain by getting organized in advance and planning for tax season throughout the year.
As an ex-accountant for over a decade I’ve helped a lot of freelancers and business owners tackle tax season. The biggest mistake I see people make is not claiming all the tax deductions they deserve.
So I created a free checklist and this post as a reminder not to forget these tax deductions.
This includes five most commonly forgotten tax deductions, plus four solutions to help you have a less stressful tax season.
1. Vehicle mileage
“The number one biggest deduction that freelancers overlook is the mileage deduction,” says Chuck Dietrich, Founder and CEO of MileIQ. “If you use your car for anything work-related, other than simply commuting from home to work, there are deductions you can take,” he explains.
“If you drive from your usual work site to another job-related destination — a client meeting, to get office supplies — those miles may be deducted. The per-mile rate for 2017 is 53.5 cents for business miles driven, and our customers write off an average of $6,500 annually.”
Depending on your type of freelance work your tax savings could be just as substantial. Read my in-depth review of the MileIQ app and how you can track your business miles to deduct on your taxes.
2. Health insurance premiums
The cost of health insurance as a huge expense for freelancers. Am I right? It’s often one of the most expensive line-items in your budget.
Thankfully though, you can deduct up to 100% of the cost of your health insurance premiums as a Schedule C deduction on your taxes.
This can include yourself and your family if you pay premiums for health, dental and long-term care insurance.
To see if your health insurance costs qualify for this tax deduction, check out the Small Business Jobs Act of 2010 or ask your tax professional.
3. Continuing education
We’ve all taken courses and classes to help us learn how to run our businesses better.
Any ebooks and courses related to your freelance business, whether that’s building a website from scratch, getting more clients to come to you or reading a business-related book, all of these costs can be written off.
This includes any classes, workshops, online courses and other education costs that are related to your current field of work — no matter if they’re online or in-person.
And don’t forget any costs for books, research and subscriptions!
This tax savings could help ensure that your course purchase is worth the time and money you’re spending.
4. Home office expenses
Another commonly overlooked tax deduction for freelancers is the home office deduction.
In past years the IRS had difficult tax methods for calculating this tax deduction, but with the recent introduction of the Simplified Method it’s easier than ever to get a decent deduction for the use of your home office.
You can deduct $5 for every square foot of your home office space, so all you have to do to calculate the tax deduction is measure the square footage of your home office and multiply this by $5.
You can use this method up to a maximum of 300 square feet, so if you have a large home office you may want to use the Traditional Method instead.
“If your home office qualifies as your principal place of business, you can vastly increase your write offs. Plus, by having a home office you can take a vehicle mileage deduction for any trips you make from your home office to another business location,” explains Deitrich.
5. Advertising and marketing
Finally, another often forgotten tax deduction for freelancers is advertising and marketing expenses.
These days you may not use traditional methods of advertising (although those expenses count too). This means that any marketing you do on Twitter, Facebook or other social media or blogging platforms, is tax deductible.
If you purchase business cards, or pay Google for Adwords or a marketing firm for SEO help, all of these expenses are considered advertising services and can be written off.
6. Saver’s Tax credit
If you make contributions to a qualified retirement account throughout the year, you could qualify you for the Saver’s Tax Credit (formerly known as the Retirement Savings Contribution Credit).
For example if you have a Roth IRA or a SEP (Simplified Employee Pension) IRA.
This often-overlooked tax credit matches up to 50% of the amount you save in a retirement plan, up to $4,000 (or $2,000 for single filers). This credit begins to be phased out the more income you earn but every little bit helps when saving for your future.
How to Track Self-Employed Tax Deductions
Now that you know the most commonly forgotten tax deductions, here’s how to keep track of them so you don’t miss out on any tax savings throughout the year.
7. Use a business checking account
I’ve said this before but separating your personal and business checking accounts will make it SO much easier for you to keep track of your business-related expenses.
Plus, you don’t want your bookkeeper or CPA all up in your personal account asking what different expenses are.
If you’re not sure which bank offers the best business checking account, I did an in-depth review of several banks and the features each checking account offers.
8. Log all business receipts
Obviously the best and most effective way to ensure you don’t miss out on important tax deduction is to consistently track all of your expenses and receipts.
There are several ways you can do this while streamlining your process to save time:
- QuickBooks Self-Employed – Any type of bookkeeping or accounting software will help you get and stay organized, but I highly recommend QuickBooks Self-Employed. It’s a program I use personally because their mobile app makes it easy to track expenses and upload pictures of your receipts on the go. No more missing out on important tax deductions because you don’t have the receipt to back it up!
- Mobile apps – “Freelancers are extremely busy people,” says Deitrich. “So it’s natural that these professionals forget to track every single trip, for example, short errands to buy supplies and quick trips to meet clients for coffee. But these one to five-miles drives can add up over the course of a year. It may seem too cumbersome to log every single drive by hand, but apps such as the MileIQ app captures and logs your drives automatically so you can focus on your business. People don’t realize how quickly the dollars add up,” he explains.
- Budget meetings – Schedule in regular budget reviews and check-ins with yourself, your team and your spouse, as needed. Treat yourself to a monthly coffee meetup, or reward yourself with ice cream afterwards, but do what you can to attend regular budget meetings to review your expenses and keep your finances organized.
9. Use this free tax checklist
I’m all about making to-do’s easier and one of the ways I do that is to write everything down and leave reminders so I don’t have to think about remembering.
It’s all too easy to forget appointments and tasks because we’re constantly on the go.
That’s why I created a simple tax checklist that’s geared towards freelancers and the self-employed so you won’t miss out on any important tax deductions.
Just click the button below to download the free PDF and start getting organized.
Stress less during tax season
Finally, tax season is a stressful time for everyone, but especially freelancers, so do what you can to reduce the overall stress level.
“Automate your life and business as much as possible so you can concentrate on what matters most,” says Deitrich. And I couldn’t agree more!
Join supportive groups like the Freelancers Union or if you have freelance and business-related questions. You’ll find the answers you need within a safe space among other business owners.
There’s no way around tax season but you can use these tips to ensure you get the most tax deductions that you qualify for.
Even if you don’t enjoy the process at least you’ll pay the least amount of taxes and get to keep more of your hard-earned money.
How do you keep track of self-employed tax deductions? Share your tips in the comments!