Archive for February, 2012

Being a freelancer and working from home gives you the freedom to set your own hours, avoid the rush-hour commute, and even work in your pajamas. Working outside of a corporate environment might make you the envy of your friends, but it’s important to remember that freelancing begets a high level of financial responsibility. While most employers take taxes out of paychecks and cover a percentage of health insurance costs, freelancers are not afforded this opportunity. Thankfully, there are deductions you can take to soften the blow of expenses that eat into your freelancing income.

1. Security system

Since you’ll be working from home, consider investing in an ADT security system. The installation of such will help protect your property and can even reduce your home insurance costs. Keeping your home, apartment, or condo safe is important, especially if you’ll be working alternate hours (e.g., late in the evening) or working alone. You’ll also want to make sure the office equipment you’ve purchased is safeguarded, especially in your absence during meetings or conferences.

2. Home expenditures

Working out of your home reduces your tax liability because you will be able to subtract a percentage of your household expenses. Understand, however, that you must have a designated office space in your house to qualify. You don’t need to add an addition on your house complete with wingback chairs and all-walnut furniture, but the IRS will expect something more than a card table in your foyer. You will be able to write off the square footage of your office space, as well as a portion of your water, electricity, heating/cooling, and telephone bills.

3. Health insurance

Medical expenses, such as doctor bills and health insurance premiums, are a high expense for everyone. Freelancers, in particular, often pass on insurance coverage because they can’t afford monthly premiums. Thankfully, as a self-employed person, you can write off 100% of your medical expenses and reduce your tax liability. Be sure to keep records of payments made to your insurance provider, and request an itemized list of expenses from your doctors to make your life easier at tax time.

4. Business equipment

Every piece of equipment you purchase for your freelance business, including computers, printers, ink, paper, pens, stamps, and envelopes, are eligible write-offs. Create a folder or spreadsheet at the beginning of each tax year. Deposit receipts into the folder and enter dollar amounts into your spreadsheet. This is a simple and effortless way of keeping record of all your business expenses and maximizing your return.

5. Travel expenses

Did you travel to attend a business seminar, meet with a client, or set up shop at a trade show? It doesn’t matter how you reached your destination – bus, train, car, or airplane. Expenses associated with your travels, such as tickets, fuel, car rentals, and mileage can be deducted.

You may need to do some research with the IRS to determine which expenses are permitted – for instance, that new plasma TV might raise an eyebrow or two if you can’t prove it’s necessary for your business – but many expenses are IRS-authorized. Once you’ve done the groundwork to start your career as a freelancer, just keep an eye out for allowable expenses that can help you breathe a little easier when it’s time to review your 1099s.

Danielle has been freelancing under the security of ADT for a year and makes the occasional cross-country trip for business reasons. For once, she’s actually looking forward to tax time! Read her eatbreatheblog.com.