Self-employed freelancers may often miss out on several tax deductions that they qualify for due to their limited knowledge about those potential tax benefits. This article discusses some helpful tips that will enable you to enjoy as many tax benefits as possible in the course of doing your work as a freelancer.
Don't Ignore Start-Up Costs
Many freelancers set up offices within their homes. Some freelancers may not know that they qualify for some tax benefits on the costs that they incur to start their businesses. Deductible costs may include the cost of buying furniture and electronics that will be used in the freelance work. However, you should find out when these deductions can take effect. For instance, some jurisdictions may only allow you to deduct part of your start-up costs once your first client pays you for your services.
Home Office Benefits
You may also qualify for a tax deduction on the section of your home that you use for your freelancing activities. That space should only be used for business-related work if you are to benefit from this deduction. The benefits are normally calculated a variety of ways. For instance, you can measure the square footage occupied by your home office and then multiply it by the tax deduction rate offered for each square foot.
Professional Memberships and Development
Many of the costs that you incur on professional development and memberships can also attract tax deductions. For instance, freelance writers can deduct the cost incurred to enroll for an online writing course intended to help them access a niche market. Such deductions can add up over time.
Keep Mileage Logs
You can also get a tax deduction on the mileage accrued as you meet different clients. However, such deductions may be subject to serious scrutiny by the tax authorities in order to confirm that the claims are genuine. It is therefore helpful for you to maintain a detailed mileage log stipulating how far you travelled to meet a specific person in order to discuss a certain work-related matter. That log will help you to address any queries that are raised by the tax authorities.
Set Up a Company
You may also enjoy greater tax benefits if you set up a company for your freelance work. You can then pay yourself a salary as an employee of that company so that your other income is taxed at a potentially lower rate since it will come to you in the form of dividends. Besides, companies often have greater leeway to incur certain expenses while individuals often pay tax before they can spend. For example, the company may pay for your annual vacation using before-tax money.
Work closely with a tax accountant so that you can receive accurate advice about the different techniques that you can use to reduce your tax obligations. That professional will save you from any fines or prosecution that may result from mistakes that you make as you handle your tax affairs on your own.
