On top of figuring out how to get freelance writing clients, taxes is one of the biggest challenges new independent writers face as they establish their business. Knowing what is or is not available as a deduction, how to calculate tax brackets, and what percentage of your income should be saved for tax purposes are all critical to maintaining a healthy productive business.
This guide will help you get started by going over everything you need to know to make the most of your tax return and keep your writing business as profitable as possible.
Not only can business expenses be deducted from a freelance writer's taxes, it’s an important way to make your business as profitable as possible!
The trick is knowing what can be counted as a deduction and how to keep records of all your business expenses and potential deductions.
Need to know what expenses are deductible? Not sure if your recent business expense qualifies?
You’re in the right place.
Knowing how the IRS decides which business expenses are deductible and which aren’t is one thing, knowing exactly what kind of writing expenses are deductible is even more powerful. This list will help you keep better records of your deductible business expenses and get the most from your return.
Whether you are a freelance writer or employed by someone else, chances are you have some personal expenses related to your business. Many of those business expenses may be deductible. You may even be able to deduct the entire cost of some kinds of expenses.
There are two requirements for a business expense to be considered deductible. The expense must be both ordinary and necessary. Those terms are relatively broad, so such working definitions are important.
For an expense to be considered ‘ordinary’ is must be a relatively common expense for other people in your profession. For instance, most writers will need a computer, a subscription to Microsoft Word or another word processing program, and other common office equipment.
The second requirement is a little trickier but probably broader than you expect. Necessary refers to anything that helps you with your tasks at work or is generally helpful. It doesn’t mean that the item or service needs to be critical to your business, only that it’s helpful and used primarily or entirely for your writing business.
Some things might seem like business expenses at first, but are really unnecessary, usually because they are luxuries. These items aren't tax-deductible. This is why drinks with a client aren't tax-deductible, and some other expenses will also fall into this category.
For the most part, it's easy to identify unnecessary extras with basic common sense. As a general rule, if you aren’t sure whether an expense is deductible, you should either consult an expert or leave it off your deductions.
Other expenses aren’t tax-deductible, and it's important not to accidentally add these expenses on tax day. For example:
Now that you know what you can deduct, how do you take advantage of those deductions? Well, there are two basic options:
1. Using software
Business and tax software are a huge help for most freelancers, especially if you don’t have prior tax experience. These programs can help you track and record your business expenses, as well as helping you determine where to file each deduction.
Software like Bonsai Tax can help with your taxes, while the rest of the business management software makes it easier to track your income and even stay better organized. Bonsai is a good affordable choice for creative freelancers, including writers.
Get started today and be better prepared for next tax season.
Of course, you can also track your business expenses manually and then prepare your return by hand. Usually, it's easier to do this if you keep close track of your receipts as well as physical records of your business expenses, just like your income.
When it’s time to prepare your taxes you can get everything ready yourself, or you could hire an accountant or a tax professional to help prepare your taxes for you.
Remember, you can use Bonsai's free self-employment tax calculator to estimate your quarterly taxes!