6 Tax Write-Offs Freelancers and Gig Workers Should Claim This Season
You love the rush of freelance and gig work. Even if it’s not your main source of income, it’s fun to pitch clients or drive around town with burritos in tow. And it’s especially thrilling to see that extra money hit your bank account. What’s not so fun? Handling all the tax considerations of being a freelancer.
Knowing what you can write off is a particular challenge. Does that design software count? How do you track your mileage without making Uncle Sam come knocking — and wondering why your car smells like burritos? Are you missing out on any write-offs? It’s a lot. Fortunately, MoneyLion is here to help you understand the most common tax deductions so you can keep more of what you earn.
1. Everyday Tools of the Trade
If you’ve purchased something to help you succeed at your side hustle, you may be able to deduct it. Did you get a new laptop this year to power your freelance writing business? Deduct it. The same goes for software that supports your hustle, whether you’re a graphic designer or a software developer.
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According to Hector Castaneda, a CPA and principal at Castaneda CPA & Associates, it’s important to hold onto receipts for everything you purchase to support your side business.
“You get the full tax break in the year you buy them, which is great for lowering your current taxable profit,” he said.
Keep in mind that higher-cost items may need to be depreciated over time, depending on how they’re classified for tax purposes.
2. Educational Courses and Trainings
As skilled as you are at your side hustle, there’s always room to get better. Of course, you may be enrolling in courses and training to sharpen your skills and take your business to the next level.
Castaneda says you can write off the costs of continuing education — but only if it applies to your current gig work.
“As a freelancer, you can deduct these costs as long as they maintain or improve the skills you need for your current business,” he said. “Anything that qualifies you for a new trade (for example, a writer taking a course to become a licensed plumber) or meets the minimum education required to start your business in the first place is not deductible.”
3. Vehicle and Mileage Expenses
Are you a rideshare driver on the weekends? A DoorDash driver in the evenings? Then you’ll definitely want to write off vehicle-related expenses — especially mileage.
The IRS publishes a standard mileage rate you can use as a guide. But if logging every mile in a notebook feels overwhelming, you can rely on apps like MileIQ to track business-related mileage for client meetings or deliveries.
You can generally choose between the standard mileage rate or deducting actual vehicle expenses, such as gas, maintenance and insurance — but you can’t use both methods for the same vehicle in the same year.
4. Unpaid Invoices (No, Really)
Unpaid invoices are the bane of every freelancer’s life, but there can be a small silver lining during tax season. While you’d ultimately love to collect the money you’re owed, the Intuit QuickBooks blog notes that the IRS allows self-employed individuals to deduct certain unpaid invoices as a business loss.
That’s all the more reason to track your invoices diligently. To properly take the deduction, you’ll need a detailed list of unpaid invoices, including their corresponding numbers. Writer Kai Des Etages explains a few additional considerations.
“Note that this deduction is only available if you keep your books using the accrual method of accounting,” she wrote. “Under the accrual method, income is taxable when you send the invoice. Conversely, under the cash method of accounting, income is taxable only when you receive payment.”
Freelancers who use the cash method generally cannot deduct unpaid invoices because the income was never reported in the first place.
5. Health Insurance
Health insurance can be another area of concern for freelancers who don’t have employer-sponsored coverage — after all, it’s not a small expense. Fortunately, Des Etages says you may be able to deduct premiums if you pay for your own coverage and aren’t eligible to join a spouse’s employer-sponsored plan.
“You can also deduct the health insurance premium for your spouse, dependents and children under 27, even if they aren’t dependents on your tax return,” she said.
The deduction generally cannot exceed your net profit from self-employment, and you must have earned income from your business to qualify.
6. Retirement Contributions
While freelancers get to set their own hours and choose their own clients, they’re also on their own for retirement planning — since they don’t have access to an employer-sponsored 401(k). However, they can open a solo 401(k), SEP IRA or SIMPLE IRA. Contributions to these retirement accounts may be deductible, lowering taxable income.
Depending on the account type, contribution limits and deductibility rules vary, so it’s important to review the specific guidelines for each plan.
The Bottom Line
Tax time can be confusing for freelancers. But with smart planning and knowledge about the write-offs you can claim, it doesn’t have to be. As long as you keep your necessary receipts and maintain good records, you can come out of tax season on top.
When in doubt, consider consulting a qualified tax professional to make sure you’re maximizing deductions while remaining compliant with IRS rules.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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