What Is a Tax Write-Off? How Does it Work for Business?

If you are new to freelancing, then tax write-offs are your new best friend. Most self-employed folks, freelancers, gig workers, and small business owners, are aware of the benefits of these tax deductions.

What is a tax write-off?

The IRS offers self-employed taxpayers, the ability to write off the cost of business purchases from their tax bill. However, these business expenses must be “ordinary and necessary” in your industry.

So, in other words, a tax write-off is a business expense that is deducted from your taxes. These expenses can be anything purchased in the course of running a business. For example, if you are an artist, you can deduct the cost of art supplies from your taxes. You can also write off your art studio rent.

These tax write-offs can help you reduce your taxable liability, which in turn lowers the taxes you have to pay.

Who can write-off business expenses?

As mentioned above, tax write-offs can be claimed by freelancers and self-employed workers. The following are considered to be the same from the point-of-view of the IRS:

  • Self-employed
  • Independent contractor
  • Freelancer
  • Gig-worker
  • 1099 worker
  • Small business owners
  • S-Corporations

All of the above-mentioned can claim business expenses. Self-employed people, like independent contractors and business owners, can deduct their business expenses from their gross income to lower their tax bills.

This is true whether you have a sole proprietorship or an LLC — you don't need to have a particular type of business entity to deduct expenses. (W-2 employees, however, can't write off what they spend on work, even if they’re paying out of pocket. They'll have to get reimbursed by their employers.)

What are some common tax write-offs?

Some of the common tax deductions include the following:

Home Office

Working from home is one of the greatest perks of being a freelancer, especially if you operate your business from home full-time. It also provides you with a significant tax deduction, if you qualify for the home office deduction.

You can claim the deduction as a homeowner or even as a renter, and you can use the deduction for any type of home where you reside: a single-family home, an apartment, a studio, or a houseboat. However, you can’t use it for temporary lodging.

The home office deduction offers you a tax write-off for items such as mortgage interest, rent, utilities, real estate taxes, maintenance, repairs, and other related expenses.

Car & Mileage

As a self-employed worker, freelancer, or independent contractor if you own a car and use it for business purposes, you can deduct mileage and car-related expenses. For many self-employed workers, mileage is the largest deductible on their tax returns.

Moreover, the deduction is not just limited to Uber, Doordash, or rideshare drivers. If you work primarily from a home office, the occasional supply run, client meeting, or business trip also counts.

Business Meals

Most freelancers and small business owners tend to take out clients, vendors, or potential employees for some meal or entertainment to build their business. These business meals and entertainment are legitimate business tax deductions.

The IRS describes a business meal as the following: food and beverages provided to a current or potential business customer, client, consultant, or similar business contact.

So, as a freelancer, you can deduct the cost of the following:

  • Taking a client out for lunch
  • Lunch with a coworker/independent contractor
  • Meeting with a potential referral
  • Business discussion with anyone
  • Meals consumed while traveling

Rent

For most freelancers, rent is one of the biggest tax deduction opportunities available. Moreover, rent as a tax deduction is not just limited to the workspace: If you make long business trips, you may consider avoiding wear-and-tear of your own vehicle and renting a car instead. As per the IRS, any work-related travel expenses (rental cars, flights, hotel rooms) are deductible.

Health Insurance

As a self-employed individual, you can claim a deduction on your healthcare premiums, regardless of whether you itemize your deductions or not. However, you may be ineligible for the deduction if you participate in another employer’s plan and elect not to, or you have another job that offers a health plan, or you receive coverage through a spouse's employer-sponsored plan.

Education

According to the IRS, for your education expenses to be considered as a write-off towards your taxable income, it must help to “maintain or improve your job skills”, which includes expenses such as-

  • Tuition and fees
  • Room and boarding
  • Transportation
  • Online courses
  • Subscriptions
  • Internet fees
  • Research & typing

Student Loan

If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income this includes student loans, tuition, fees, transportation, etc. Some of the student loan expenses include American Opportunity Credit, Lifetime Learning Credit, Coverdell Education Savings Account, etc.

How do tax write-offs work?

Although the IRS allows self-employed individuals the ability to seek deductions on anything considered “ordinary and necessary” to run their business, it doesn’t provide a specific list of small-business tax deductions for every profession.

Generally, any work-related items are tax-deductible, however, finding appropriate tax write-offs depends on your profession.

For example, a delivery driver can write off car and mileage expenses along with a subscription to a music streaming service. Meanwhile, a graphic designer can deduct the cost of Adobe Cloud and a drawing tablet. However, a delivery driver cannot deduct the cost of a drawing table from their taxes.

If the task of finding tax write-offs seems too difficult, use FlyFin. The app is powered by A.I. which works around the clock and scans through all your expenses to provide you with the most accurate deductions.

On average, 75% of freelancers overpay on their taxes since they don’t consider deductions while estimating quarterly taxes. They do not take into account personal itemized deductions such as home-office, mortgage, charitable contributions, etc. This often leads to unnecessary confusion and loss of tax savings.

The app helps track all of your expenses and categorizes them as deductible, non-deductible, or possible deductions. Before calculating your expenses, FlyFin will ask you a few questions regarding your profession to understand your expenses.