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Your Complete Guide To Saving The Most Possible With Tax Deductions
Your Complete Guide To Saving The Most Possible With Tax Deductions
When it comes to saving on taxes when you’re self-employed, deductions are always a safe bet. Running your own business comes with many costs, most of which are eligible for a business expense tax deduction. The key is knowing what to deduct and what evidence is needed to show the IRS the expenses were ordinary and necessary for your business.
Maximizing your financial gains is a huge perk in the freelance and self-employed landscape. Especially since freelancers need to pay self-employment taxes on a quarterly basis through estimated quarterly taxes. This guide is your key to the often overlooked tax deductions, designed to empower individuals with strategic insights for substantial savings.
Explore tax deductions
Let’s face it. Things can get really confusing when it comes to tax deductions. You’re probably asking yourself, which ones are deductible? Let’s take a look at some of the most common 1099 taxs deductions you can take to maximize your tax savings.
Advertising
Promoting your business is a great way to reel in more customers. But, this comes with a cost. Since advertising costs are directly related to your business, you can write them off as advertising business tax deductions. This includes promotional events and marketing materials that directly benefit your business. So go ahead and write off your Instagram, Facebook or Google ad campaigns.
Business insurance
Opting for business insurance is always a good idea, even though it might be costly. In the eyes of the IRS, it’s considered a necessity and is tax-deductible for self-employed individuals. You can deduct the premiums in the year you incurred the cost, and most types of business insurance are tax-deductible, including cyber insurance, liability insurance and property insurance.
Business meals
Business meals are an important part of doing business. You might need to meet a potential client for coffee, meet a colleague over sushi or an investor over brunch. The IRS allows you to deduct half of the cost of business meals as long as the purpose of the meet is business-related and a business associate attends the meet. Solo meals don’t count as part of the business meals deduction. Most entertainment expenses are no longer deductible.
Business travel
Sometimes, it’s necessary to leave your tax home and travel for business-related reasons. You might need to attend a conference, meet a client or visit a potential property or investment. Whatever the case, you can deduct your lodging, rental car, transportation and food expenses while traveling for business.
It’s important to keep track of your receipts while traveling. FlyFin is the perfect way to do this. All your business expenses are in one place, and A.I. will scan them to ensure you are taking every deduction possible. CPAs will file and review your tax return, ensuring complete accuracy. They’re also available for unlimited tax advice or questions.
Charitable contributions
Do you enjoy giving to charity and want to help out your favorite cause? The IRS allows you to write off your charitable contribution up to a certain amount, depending on your tax filing status. But you better think twice before donating to any old charity. The charitable organization must be approved by the IRS for the contribution to count as a charitable contribution deduction.
Clothing and accessories
In certain professions, a specific work uniform is required. This might be a firefighter or police officer uniform, a fluorescent vest for a construction worker or scrubs for a nurse. These types of clothes can be written off for the clothes tax deduction, but the catch is that the clothes can’t be worn in any circumstances outside the work environment, so a suit, dress or khaki pants won’t count. One loophole is if your clothing has your company logo on it, then it’s deductible.
Clothing and accessories
In certain professions, a specific work uniform is required. This might be a firefighter or police officer uniform, a fluorescent vest for a construction worker or scrubs for a nurse. These types of clothes can be written off for the clothes tax deduction, but the catch is that the clothes can’t be worn in any circumstances outside the work environment, so a suit, dress or khaki pants won’t count. One loophole is if your clothing has your company logo on it, then it’s deductible.
Commission and fees
If you find yourself needing some legal advice or just need attorney services, you can deduct any associated costs. Legal fees and commissions are usually tax-deductible, and even legal cases related to your business can count as a commission and fees write-off. If you need to hire a lawyer in relation to an IRS audit, that’s deductible, too.
Contract labor
If you’ve been hired to complete a specific project, you’re actually a contract laborer. This differs from an employee who is hired for an indefinite period and can work on multiple projects at once. This distinction is really important when it comes time to file taxes, and self-employed individuals need to pay contract labor taxes. These taxes can be really complicated, and it’s best to use a self-employment tax calculator for this.
Devices and equipment
Section 179 is an IRS tax code that enables businesses to declare specific assets as eligible for business tax deductions. In 2023, Section 179 stands as a significant write-off for business vehicles. You can write off machinery, computers and office furniture. Section 179 can also be utilized as a tax deduction for small businesses through the bonus depreciation deduction.
Gas and vehicle services
Owning a car comes with a lot of freedom, but there are also a lot of costs involved. Any vehicle-related expense is tax-deductible if you’re itemizing your deductions. What about the car wash last week? Or the oil change last month? All deductible. You can even write off tolls, parking, vehicle registration fees and business miles as a business mileage deduction.
Health insurance
Getting sick is inevitable, which means having health insurance is absolutely necessary. When you’re self-employed, it’s up to you to have your own health insurance policy since this is something typically only offered to employees. You have the freedom to choose the best health insurance plan for your particular needs. You can deduct health insurance premium costs when you itemize your deductions.
Home and capital improvements
There’s nothing like a new home project to make your home feel fresh and new. For the IRS, there’s a distinct difference between a capital improvement and home repair project. You can deduct home renovations and improvements as part of the home improvement tax deduction. When upgrading your home with a capital improvement project, you can take a tax write-off for any related costs.
Home and office insurance
You never know what might go wrong in your home. Home and office insurance is always a safe bet, no matter what comes your way. If you work from home, you can deduct home insurance premiums when you’re self-employed. Or, if you have rental property, you can deduct homeowners insurance as a real estate tax deduction.
Internet
Where would we be without the internet? The IRS knows that the internet is important for the success of a business. You can write off the business portion of your internet bill as an internet tax write-off when you’re self-employed. If you’re a W-2 worker, you can no longer deduct internet, even if you work from home.
Medical and dental expenses
You can deduct medical expenses from your income taxes, and the dental insurance deductible can be written off if it exceeds 7.5% of your Adjusted Gross Income (AGI). It's important to note that medical bills are eligible for a medical tax deduction only when you itemize your personal expenses.
Professional and legal services
Turn your legal fees into tax deductions by ensuring they are essential for your business. The deduction for tax preparation fees is yours to claim, but remember, it applies only if the service was utilized for business purposes. You should report legal and professional services on Schedule C.
Rent
When you’re self-employed, there are a few ways you can deduct your rent. If you work from home and have a home office that’s your primary workplace and used exclusively for business purposes, you can deduct the rent for the portion of your home office. Or, if you have a lease for an external office space, you can subtract the entire rental cost from your taxable income.
Repair and maintenance
Generally speaking, home repairs aren’t tax deductible, but capital improvements are. Repairs fix the normal wear and tear on your home, like repainting the walls or replacing the front door. Capital improvements increase the lifespan of your home and the value of your home, and can include things like installing a new hot water heater or replacing the roof.
Shipping
When owning your own business, you’ll probably need to ship something at some point. It could be inventory, customer packages or even important business documents. As long as the shipping costs are directly related to your business, you can deduct them as business expenses. This includes things like packing tape, shipping labels, boxes and postage. Some states even charge sales tax on shipping and handling costs.
Software
Software is an important tool to help carry out the tasks for a business. Software as a tax deduction is pretty complicated. There are a few ways to write off software, including writing it off as a regular business expense, software depreciation using the straight-line method, software depreciation using Section 179 and software amortization. If the software costs are less than $2,500, they need to be written off on Schedule C, including payroll, accounting or VPN software.
Student loan payment
Student loans are almost inevitable when attending college these days. The student loan interest tax deduction can be claimed by parents and students who have a qualified loan. Both private and government loans are included in this deduction. The loan also needs to pay for a university that you studied at to cover tuition costs. With the new SAVE repayment plan in place, you may be able to lower your monthly loan payments.
Taxes and licenses
When you’re an industry expert, you typically need certifications or licenses when offering your services to others. Whether you run a sole proprietorship, LLC or corporation, you can deduct license costs as long as they are considered an ordinary and necessary expense for your business. W-2 employees can no longer deduct these expenses, thanks to the 2017 Tax Cuts and Job Act (TCJA).
Training and education
Are you a teacher? How about a professor, counselor or aide? If you fall into any of these categories and you’ve taught 900 hours or more in a state-certified school, you can deduct classroom-related expenses. There’s a different rate depending on whether you are a joint or single filer. And, if you homeschool, you won’t make the cut for the write-off.
Utilities
Owning your own business or running a self-employed gig comes with big responsibilities and one of those things is the utilities. You can write off the business-use portion of your utilities if you work from home and your home office is used primarily and exclusively for business. You can also deduct utility costs, like water, gas, internet or electricity if you have a rental property.
Writing off a vehicle
Do you have your own vehicle and use it for your business, like a construction van or a school bus? What about a leased business vehicle? These qualify as business vehicles as long as they are used for your business, and you can deduct up to the entire cost of your vehicle using the IRS depreciation method. However, only the interest you pay on the business car loan is tax deductible, not the actual car payments.
Vehicle tax write-off
1099 employees can take deductions for vehicle mileage, vehicle maintenance costs and the depreciation of the vehicle when completing their tax filings. One important part of this vehicle tax write-off is keeping accurate records for any vehicle-related expenses in case of an IRS audit.
Mortgage interest
Owning a home isn’t cheap, and add inflation costs and high mortgage interest rates into the mix, and it’s almost tempting to just stick with a rental. Some good news on this front is that homeowners can claim the mortgage interest tax deduction when itemizing deductions. As with anything tax-related, there’s a catch, and you’ll need to meet certain loan and filing requirements.
Office supplies
What good is a home office without any supplies? Thankfully, when you’re self-employed, you can fill your home with all the ordinary and necessary supplies you need including, a printer, computer, pens, pencils, stapler and paper and write them off as home office-related expenses. These need to be everyday items and nothing over the top. You can write off the office furniture, too, within reason.
Phone
Let’s face it. We would probably be lost without our cell phones. Cell phones are an important way to communicate and conduct business, whether for calling clients, booking a conference hall or advertising your business online. The IRS lets you write off a portion of your cell phone bill based on your business use percentage.
By leveraging these deductions available to freelancers and the self-employed, you're reducing your tax burden and optimizing your overall financial strategy. Stay informed, explore every deduction avenue and let your earnings work smarter for you. With these insights, you're well on your way to unlocking your full potential in tax savings.
What’s FlyFin?
FlyFin caters to the tax needs of freelancers, gig workers, independent contractors and sole proprietors.
But anyone can file taxes through FlyFin! FlyFin tracks all your business expenses automatically using A.I. technology.
Then, our CPA team files a guaranteed 100% accurate tax return for you – to save you a couple thousand dollars and a ton of time on your taxes.
In addition, you can download the FlyFin app and have your taxes filed in less than fifteen minutes, saving time and money.
Expert tax CPAs ensure 100%-accurate tax filing
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FlyFin’s Advantage
A.I. finds every tax deduction eliminating 95% of your work
Expert tax CPAs ensure 100% accurate tax filing
On average users save $3,700
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