The gig economy is not for the faint of heart. Freelance marketers and copywriters, like so many other gig workers, know that cultivating your craft is only part of what goes into being self-employed. Rather, being self-employed means, also concerning yourself with overhead expenses, office supplies, individual healthcare plans, and, of course, taxes. Legally, freelancers are required to pay taxes on any freelance income made over $400 during the fiscal year. Consequently, paying taxes on freelance income involves paying, what is generally referred to as the self-employment tax. As of 2020, the self-employment tax is roughly 15.3 percent and includes standard taxes like Social Security and Medicare. But the buck does not stop there; freelancers are also required to pay income taxes.
Moreover, being responsible for all these taxes can start to affect one's bottom line, especially when you factor in the overwhelming 73 percent of freelancers who do not deduct any expenses come tax time. If this sounds like you, then you are probably guilty of overpaying your taxes and could greatly benefit from gaining a better understanding of how freelancers are taxed. By simply taking the time to figure out what you can and cannot deduct, could mean saving yourself hundreds of dollars next year, looking specifically at freelancer marketers and copywriters, there is a wealth of tax deductions that you can and should be taking. With that being said, here are the ten tax deductions every freelance marketer and copywriter should take advantage of now. You show know about online tax prep.
Self-Employment Tax Deduction
One of the very first deductions you should be utilizing, if you are not already, is the self-employment tax deduction. This particular deduction allows you to act as both employer and employee. As a result, you are able to deduct approximately 50 to 57 percent from your 15.3 percent self-employment tax. Of course, you should consult a tax professional if you plan on taking this deduction and be advised that this deduction applies to income tax only.
Home Office Deduction and Office Rent
Generally, freelance marketers and copywriters work remotely. Working remotely, in most cases, means working from home. Thus, you may have a home office or a designated space for your business. If this is the case, then you may be entitled to take a home office deduction. This deduction allows individuals to claim $5 per square foot for their office space. There are also several other write-offs and office-related expenses like utilities and equipment that can be deducted. Furthermore, if you are renting space in addition to or instead of having a home office, you can deduct this expense as well.
Advertising, Marketing, and Subscriptions Deductions
Just like any other business entity, freelancers have overhead expenses. Thus, any advertising, marketing, recruiting, subscription service, or software that is directly linked to your business is fully deductible. This includes freelancer must-haves like email marketing platforms, grammar-checking software, accounting/billing software, and website hosting services.
Another deduction freelancers should utilize is the deduction for education expenses. Many copywriting jobs and marketing gigs require a certain level of training or continued education. Consequently, if you find yourself taking online courses, renewing certifications, or having any direct business educational expenses that are related to the current job/gig, then you should consult your CPA to see if your qualify for this deduction.
Likewise, according to the tax code, "ordinary and necessary" office supplies are always a deductible expense. This deduction can be somewhat confusing, so just remember items such as printer inks, paper, envelopes, stamps, and other supplies related to your business activities are generally deductible. Of course, if you have questions regarding this or any deduction, a tax professional/advisor can easily steer you in the right direction.
Health Insurance Premiums
As previously mentioned, many freelance marketers and copywriters are responsible for their own health insurance coverage. But under the health insurance premium deduction, self-employed individuals can deduct this expense, so long as it does not exceed their annual earnings or total freelance income.
Other Tax Obligations
Typically, other tax obligations include payroll taxes, debt expenses, employee wages, contract worker payments, and even retirement contributions. The FlCA (payroll) tax deduction, for instance, involves the additional costs that are incurred for employing other people. This means you can write-off both state and federal payroll taxes that you, as an employer, are required to pay a portion of for your employees. Similarly, debt expenses such as a client's failure to pay for service are classified as a bad debt expense, and therefore deductible. There are even a few nonbusiness related bad debt expenses you can deduct from your personal tax return.
Moreover, if you are just starting out, the IRS understands that there are basic startup costs that you will incur. Thus, you are generally "able to deduct up to $5,000 in costs that are incurred (within the first year) before you begin business operations, in monies paid to a create a new business, or if you revive an existing business as a part of a new venture," according to the IRS.
Additional Business Expenses
Freelancers can also write-off a variety of business expenses such as mileage, gifts, and conferences. In 2019, the rate for business-related mileage was 58 cents per mile. Additionally, if you incur business-related travel expenses such as on airline tickets or hotel stays, then you can deduct these expenses as well. Other business expenses like conferences/trade shows are typically deductible. Similarly, business expenses such as gifts, meals, and entertainment are deductible since they are all part of doing business and maintaining business relationships.
Finally, business owners and freelancers alike can deduct a portion of their incurred professional services costs. Professional services include business-related assistance that is deemed "ordinary and necessary." Consequently, services rendered by CPAs, attorneys, consultants, and other specialists can be partially written off. In the end, utilizing this deduction along with the other mentioned deductions will have a positive impact on your bottom line and will stop you from overpaying your taxes.