If you’ve taken the leap and you’re hanging out a shingle as a self-employed software developer, it’s important to know how to take advantage of the benefits of being self-employed.
Knowing about tax deductions for software developers is important when it comes to maximizing the bonuses of being a freelancer instead of an employee. When tax time comes, you’ll be glad you had all the information you needed.
Some of the tax deductions for software developers may seem inconsequential, but when taken together they can add up to a big reward when it comes time to file your tax return.
Each of the software developer tax write-offs can reduce your taxable income, which means less taxes paid and more profit in your bank account. Tax deductions for software developers also help offset the cost of establishing and maintaining your business.
The federal taxing authority, the Internal Revenue Service (IRS), has a definition of business expense that guides what is deductible: an expense that is both ordinary and necessary:
Ordinary is a common and accepted expense in your trade or business, such as a computer for a software developer.
Necessary is a helpful and appropriate expense for your trade or business, which does not have to be indispensable. Ongoing training would be an example for a software developer.
As a self-employed software developer, it’s difficult to know all the software developer tax write-offs that can be a big benefit to you at tax time. Our list of tax deductions for software developers will help you know what to track and deduct as an expense. You can manually track your deductions with our 1099 expense spreadsheet.
While it’s good to consult with an expert like an accountant if you’re uncertain, here are the expenses that are eligible as tax deductions for software developers.
| Category | Tax deductible |
|---|---|
| Business start-up expenses Business start up expenses like purchasing your computer, your phone, your desk and more adds up, so luckily they are counted as a capital expense, since you will use them for more than a year. |  |
| Software expenses Developers likely require special software, which is counted as a tax deduction for software. | |
| Storage costs Developers usually need storage space for their work, so the costs of electronic storage like an external hard drive, or a software storage program like Dropbox, are considered tax deductions for software developers. | |
| Office expenses The cost of having an office, including a co-shared office space, can be used as a deduction, such as the cost of rent and utilities. | |
| Home office costs If your office is in your home, that portion of the square footage can be used as a deduction for expenses like mortgage interest or rent, utility costs, and home insurance. | |
| Membership and licenses If you require a special license as a software developer, or your office requires a business license, that’s a deduction, as are association memberships. | |
| Ongoing training Software developers usually require ongoing training as the industry continually evolves, so you can deduct conferences, classes or other training, including professional magazine subscriptions or online training. | |
| Travel expenses You can deduct the costs of airfare, train, bus tickets, and accommodations, if you have to travel for conferences, training sessions, or to meet clients. | |
| Vehicle costs If you use your vehicle in the line of work there are expenses like mileage, gas, parking, road tolls, repairs, maintenance, car insurance, and more that can be claimed as tax deductions. | |
| Marketing or advertising If you advertise your services, have a website for your business, or print business cards or brochures, these can all be used as tax deductions for software developers. | |
| Office supplies You can deduct the cost of items like pens, notebooks, printers, printer cartridge and printer paper, or other office supplies. | |
| Internet and other costs Software developers need the Internet to work, so that’s a tax deduction, along with a portion of your monthly business phone bill. | |
| ️ Sub-contractor or assistant Perhaps you need special expertise for a project, or you need an assistant to help you with workload. That’s an expense at tax time. | |
| Health insurance Any health insurance related costs can qualify as eligible tax write-offs for software developers. | |
| Other expertise If you hire an accountant or a lawyer, for instance, those costs that support your business could be tax deductible. | |
| Commissions & fees Legal fees, payment processing fees (PayPal, Stripe, and others). | |
| Bonsai taxes (software) A tax filing and accounting system like Bonsai is eligible as a tax deduction. | |
There are some expenses that cannot be used as tax deductions for software developers:
| Category | Tax deductible |
|---|---|
| Personal expenses Costs of personal items like haircuts, or clothing that can be worn for work or personal use, can’t be deducted, unless there’s some reason you need a special uniform. |  |
| Non-work related legal fees That includes items like parking tickets, even if you were doing work business while parked. | |
| Commuting expenses If you have to drive to your office, that mileage is not eligible as a deduction. Instead, mileage from the office to any off-site work can be deducted. | |
Now that you know about all the software developer tax write-offs, here’s how you can take advantage of them:
1. An online tool like Bonsai accounting and taxes.
2. File your own income tax return using the deductions.
3. Utilize the services of a paid accountant.
Remember, you can use Bonsai's free self-employed tax calculator to estimate your quarterly taxes!
Bonsai Tax is built exclusively for self-employed workers to track expenses, maximize tax write-offs, and estimate quarterly taxes.
Discover Bonsai Tax.
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