A tax deduction is an expense that can be subtracted from an individual’s taxable income, reducing the amount of tax they owe. Freelancers can take advantage of various tax deductions to reduce their tax liability and keep more of their hard-earned income.
Some common tax deductions that are available to freelancers include:
- Home office deduction: Freelancers who work from home may be able to deduct a portion of their home expenses, such as rent, utilities, and internet, that are related to their business.
- Equipment and supplies: Freelancers can deduct the cost of equipment and supplies that are necessary for their work, such as computers, software, and office furniture.
- Business travel and meals: Freelancers can deduct the cost of travel, lodging, and meals that are directly related to their business activities.
- Health insurance premiums: Freelancers who pay for their own health insurance premiums can deduct those expenses on their tax return.
- Retirement contributions: Freelancers can deduct contributions to a retirement plan, such as a SEP-IRA or a solo 401(k), which can help them save for their future while reducing their taxable income.
By taking advantage of these and other tax deductions, freelancers can significantly reduce their tax liability and keep more of their income. It’s important to keep accurate records of all business expenses and consult with a tax professional to ensure that all deductions are being claimed correctly and legally.
See also: Tax Deductions, Expenses, Expense Category, COGS