While America has an income tax system that benefits investors and those who own real estate, the system also gives a shout out to freelancers if they learn to stretch deductions to their advantage. The two years that I worked solely on my book manuscript and photography were the first years I considered myself a freelancer, and having an accountant that knew which questions to ask me proved invaluable. Figuring out your self-employment tax isn’t rocket science, though, so if you oppose putting the money you spent in taxes back into the pocket of a tax specialist, then you can follow the tax forms and what to do below to make sure the money out doesn’t outweigh the money in.
- Start a Spreadsheet or Buy a Copy of TurboTax.
Best to organize your receipts and income as you go. TurboTax will walk you through preparing your taxes step-by-step, which will allow you to go through the process quite easily on your own. If you would rather have your accountant do the dirty work, then keep track of your income and expenses in a spreadsheet, along with any receipts for business expenses, and hand both over to your tax accountant at your annual tax appointment.
- 8829 Form: Expenses for Business Use of Your Home
This is my favorite form because my accountant explained to me that if any area of my home was used for business purposes, then it could be deducted. Measure the square footage of your separate office or the room where you do your freelance work, then a portion can be deducted from your rent or mortgage and reported on Form 8829. You can also apply this if you use your office for meeting with clients.
- 4562 Form: Depreciation and Amortization of Business Equipment
Form 4562 allows you to deduct your computer, printer, or any other equipment relating to your work, though you will need to keep record as to how much you use the equipment for business vs. personal if you ever are audited. With a limit of $125,000 on equipment purchased, most freelancers will want to claim this deduction in one year, but if the equipment total exceeds your total taxes spent that year, then it’s best to depreciate the equipment cost and deduct part of it the following year.
