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Tips, Tricks, and Tax Deductions for Freelancers

by Bryan Cassidy Mar 29, 2010
Everything you need to know about deductions and extensions when filing your tax return as a freelancer.

April 15th. The day the Titanic hit an iceberg and Samuel Johnson published the first English language dictionary. This same day, Jackie Robinson broke the baseball color barrier with the Brooklyn Dodgers and Fidel Castro began a good will tour of the US.

But really most citizens of the United States know this day as Tax Day, the official deadline for filing individual tax returns. With a little knowledge and forethought, though, you can take at least some of the stress out of this hellish day.

Each year the amount of tax you pay depends on your overall earned income after deductions and personal exemptions. It’s your responsibility to inform both federal and state governments how much tax you underpaid during the year or how much you expect them to return if you overpaid.

What Deductions Can I Make

If you do go for Itemized Deductions, the federal government offers a variety of tax credits and deductions. The following are a few deductions a freelancer can consider:

Job-related equipment
If you buy something you need to do your work, it is potentially claimable. This might include a laptop for a travel writer or blogger, or a digital SLR and lenses for a travel photographer. A course such as MatadorU would also count, since you paid tuition to improve your travel writing skills. Same for any fees paid to professional organizations you belong to.

Gas mileage
If your home office is your base of operations, you can deduct gas mileage to client sites when using your personal car. Just remember to keep your receipts, and a good estimate of how far you’ve driven.

Higher Education
The American Opportunity Credit and Lifetime Learning Credits and Tuition Feeds & Deductions allow individuals and families to claim deductions on post-High School education that relates to your work. It’s important you keep all statements and receipts for expenses relating to undergraduate and graduate classes, as you might need to provide them when filing your taxes.
Note you couldn’t claim continuing education deductions associated with a course such as MatadorU, because the online school is not a registered college or university.

Damaged or stolen property
If your personal or business property is damaged or stolen during the year, you can claim these costs as a deduction. Note that unless it was a big-ticket item – like having your personal yacht stolen by pirates – the value probably won’t reach the Standard Federal Deduction.

Charitable donations
If you’ve donated money to any charities, such as to the Red Cross after the horrific earthquake in Haiti, the donations can be claimed as deductions on your federal taxes.

If you successfully or unsuccessfully adopted a child, under 18 years old, during your travels around the world (whether on assignment or otherwise), you might be eligible to deduct expenses such as: court costs, attorney fees, travel (including meals and lodging), and other miscellaneous costs related to adoption.

For more ideas
Check out 10 Deductions Freelancers Can Make, on Freelance Switch. The article also includes links for those paying taxes in Canada, Australia and the UK.

Filing an Extension

Missed the April 15th deadline? Or simply need more time to get yourself sorted? Filing an extension can help minimize the payments and penalties you pay.

Filing for an extension, using the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, will give you an additional six months to file your taxes, buying you time to look for loose change under the couch so you can make a partial payment on your estimated taxes. You will need to fill out Form 4868.

There are some drawbacks to filing for an extension. There is a monthly penalty if you are filing late, approximately 5% of the amount due. And because you are making a late payment, you will have to pay interest on the amount owed, as well as a penalty which ranges from 0.5 to 1% of the amount owed.

More Tax Tidbits
  • Keep a copy of your filed tax records for three years, in case the government wants to review prior payments.
  • The more income you earn, the higher your chance of being audited by the IRS, as they will want to make sure you are paying the appropriate amount of tax.
  • There is no statute of limitations for the government to track you down if you file a fraudulent tax return, or decide not to file a tax return at all.

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