Tech Deductions You Should Know for Your Freelance or Small Business
Tech Deductions
Both freelancing and operating your own small business can be incredibly rewarding. These things can also be a lot of work, and it’s important to track every expense and claim every deduction for which you qualify. Nearly every type of business has become reliant upon technology, and therefore it’s important to know what tech-related deductions you can claim. While we’ve noted before that a good CPA can help you maximize your tax return, we also wanted to share a few deductions you should always plan for each year.
Home office deduction
Although not specifically tech, odds are your home office takes advantage of a computer, fax, printer, and the internet. We’ve mentioned this elsewhere before, but it’s worth repeating since many freelancers and small business owners work from home, if not primarily then at least infrequently. Remember that the space you intend to claim must be used primarily and first and foremost for business (i.e., even if you work from your dining table on occasion, you cannot claim your dining room as part of the deduction). Deductions can also be extended to certain home costs, such as utilities.
Internet and phone costs
Internet and phone bill costs directly related to your business can be deducted from your tax liability. For example, if you have one phone that you use for work and personal use, you cannot deduct your entire bill. But if you have a second phone line that you use exclusively for business, you can deduct that entire bill.
Computer for business use
If you purchase a computer for business use, you can deduct the entire cost in a single year. In order to qualify, the computer must be for business use more than 50% of the time. However if you also use the computer for personal use, you can only deduct the percentage of time for which you use it for work. For example, if you use the computer for work 80% of the time, and use it to stream movies and play games 20% of the time, you can only claim 80% of the cost.
Image credit: Isabella
Freelancers and Expense Tracking
Expense Tracking
Freelancers are often busy: outside of working odd hours, they have to track their own business expenses, invoices, and taxes. Whether you decide to hire a CPA or take on everything by yourself, these tips will help you keep your finances in order.
Be transparent about your income and expenditures
Avoid the dreaded audit and always have a clear sense of your finances by simply being honest. Doing so will make filing taxes easier, and should you ever hire a CPA he or she will thank you.
Know your deductions
Do you have a home office? You can deduct some operating costs. Do you have to travel to meet a client or do research for a job? You can deduct those expenses. It behooves every freelancer to know what is and is not eligible for a tax deduction.
Use a separate bank account
Don’t count on your memory to track expenses and income. Doing so can lead to unfavorable discrepancies: if you overstate your income, you’ll pay too much in taxes; if you understate your income and the IRS finds out, you’ll have to pay back taxes which may include penalties and interest.
Utilize software
There’s an app for that. Even if you employ an accountant, proper software will help you stay organized and be able to present your expenses, invoices, and income.
Backup everything
Millennials and older generations remember tracking everything with paper records. While the tactile feeling of books may still be appealing, in the age of the cloud it’s a largely irresponsible way to track expenses by the simple fact that paper is hard to backup.
Backup your backups
This probably sounds absurd after we just pitched you on digital records over paper records. However cyber security threats are real and cloud storage is cheap–and in some cases free.
Image credit: reynermedia
What Types of Fees can Freelancers Write-Off as Business Expenses?
One of the benefits of working for yourself is that you can write-off expenses which you would not ordinarily be able to write-off. Things which would otherwise typically be categorized as a luxury item wind up not being a burden. In this article we will cover the types of things freelancers can write-off on your taxes as a business expense.
Equipment Related To Running Your Business
As a freelancer, you can usually write-off equipment that you purchase to run your business. You can usually write-off the cost of your computer, your internet service, your phone service, and your phone itself. If you make clothes, you could write-off the purchase of your sewing machine and fabric. If you use your car in your business, you can write-off your mileage.
Service Provider Fees
You can also write-off the fees you pay to service provider who confer benefits to your business. For instance, as a freelancer you can write-off fees that you pay to your attorney and your accountant.
Educational Fees
You can deduct fees for training. This includes seminars, workshops, books, and DVDs that you purchase to help you stay on top of your field.
Home Office Deduction
You can also take a tax deduction for the portion of your home that you use for your business. This section of your home can only be used for business if you plan to take this deduction.
Running your own business from home can be challenging. You do have to invest a certain amount of money up front. These deductions can help put some of that money back in your pocket.
Image credit: StockMonkeys.com
