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Tax Write-Offs: Everything You Need To Know
What is the meaning of a tax write-off?
“What is a tax write off?" is a common question asked by self-employed individuals who are looking for ways to lower their tax bills. Every independent contractor, freelancer and gig worker can claim various deductions on their taxes, known as tax write-offs.
Using these deductions could potentially bring down your taxable income and decrease your tax liability to the IRS. However, navigating the world of tax write-offs can be quite confusing, so it's important to understand what a tax write-off is, how they work and which expenses are actually tax deductible.
Key takeaways:
- Tax write-offs can help lower your taxable income
- Every self-employed individual can claim write-offs relevant to their industry
Table of contents
What does tax-deductible mean?
"Tax-deductible" refers to expenses that can be deducted from your taxable income, thereby reducing the amount of tax you owe. According to the IRS, these expenses have to be essential to your business otherwise you can’t claim them as tax write-offs.
Suppose you're a freelance graphic designer, and you earn $70,000 in gross income in 2024. You calculate that you also have $10,000 in business expenses, like paying for software subscriptions, buying an iPad and paying rent for your office.
You can deduct these expenses from your taxes, so your taxable income would be reduced to $60,000 ($70,000 - $10,000). This means that you'll only pay taxes on $60,000 of income instead of $70,000. In this scenario, the $10,000 in business expenses is tax-deductible and saves you money on your taxes.
But if you spend $300 on a haircut that can't be considered a business expense and try to write it off as one, the IRS obviously won't be too happy about that, no matter how good the haircut made you feel.
You will report these deductions on Schedule C, as part of the tax return form that every American has to file, the ubiquitous Form 1040. If you want to take advantage of digital tools to find every tax write-off that you can claim for your line of work, you can use a 1099 tax calculator.
And, to calculate your tax breakdown and make sure you're not underpaying (or overpaying) your taxes and potentially facing penalties or missed opportunities for deductions, it's best to use a self-employed income tax calculator.
Are tax credits the same as tax write-offs?
Tax credits and tax write-offs are both ways to lower your tax liability, but they work a little differently from each other. Tax credits can directly reduce the tax amount that you owe the IRS, while tax write-offs can reduce your taxable income.
In other words, tax credits are applied to your tax bill after your taxable income has been calculated, while tax write-offs are applied to your taxable income before your tax bill is calculated.
Not every taxpayer is eligible for every tax credit, but the IRS has a list of tax credits and their eligibility criteria that you can check out for more information.
What is a tax write-off going to do for my quarterly taxes?
Claiming every tax write-off you can is also helpful if you have to pay quarterly taxes. As a self-employed individual, the IRS expects you to pay taxes every quarter if you owe them over $1,000 in tax a year.
Let’s break this down with a simple example. You are a freelance writer, and you earn $50,000 in self-employment income in a calendar year. To figure out your tax payments, you’ll need to do some estimation of the total income you are expected to earn and potential deductions and credits.
For example, let's say you estimate that your tax liability for the year will be $12,500. You divide this by four to get a quarterly payment of $3,125. Since it is over $1,000, you would need to make this payment in four equal parts throughout the year. If you hate doing math, use a quarterly tax calculator.
Missing a tax deadline is pretty serious, but sometimes it's unavoidable. But, you can always file an extension and file your annual tax return six months later. Just remember that this extension is only to file your return and not paying the tax amount (which you need to do in April).
If that's not a possibility for you either, and you just weren't able to pay on time, you can use a tax penalty calculator to work out how much you’ll have to pay in penalties.
Paying estimated quarterly taxes can help you take more advantage of tax write-offs. By estimating your income and tax liability throughout the year, you can more accurately track your expenses and deductions, allowing you to take full advantage of your tax deductibles.
This is easier said than done. Expenses can be forgotten, receipts can be lost. But by just linking your expenses to FlyFin, A.I. can find every possible deduction that you can use when filing your taxes.
Along with saving you precious time and money, you can also reach out to the team of CPAs specializing in 1099 taxes on the app, 24/7. The CPAs will also prepare and file your federal and state tax returns for you.
In conclusion, tax write-offs provide a valuable opportunity for self-employed individuals to reduce their taxable income and save money on taxes. Tax write-offs can be a powerful tool for self-employed individuals to lower their tax bills and free up additional funds for their businesses.
By carefully documenting and categorizing business expenses, self-employed individuals can take advantage of various deductions, better manage their finances and more effectively invest in the growth of their businesses.
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
A.I. finds every tax deduction, eliminating 95% of your work
On average users save $3,700
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