There are some extraordinarily good benefits to being a freelance writer. The word “free” should be a tip off–it’s a satisfying, enjoyable career, and you’re your own boss. It’s a freedom many people long for, but few attain. There are a few caveats, however. You must be a self starter because there’s no one pushing you to get things done. If you don’t do it, no one else will. You’re also responsible for every phase of the business, including taking care of your taxes. The good news is that being self employed has some tax advantages. Following are some tax tips for freelancers.
It’s a Job
When filing an income tax return, it’s imperative to make sure all the deductions you take are legitimate. The IRS is well aware of the tax benefits of being self employed and are constantly on the lookout for dishonest people who claim to be a self employed business person but in reality only have a hobby. In order to qualify for a number of deductions associated with being a freelance writer you must, in fact, be operating a business.
Prove It’s a Business
One important step to take in order to prove your freelance writing profession is a business is to have a dedicated business bank account, separate from your personal account. Another way is to have a record of your expenses organized in such a way that they can be readily accessed. You should also be able to prove how much time you spend doing the job, and be able to produce previous records of having made or lost money as a freelancer. According to the tax reform act of 1986, a person is considered to be a professional in their field if they’ve shown a profit for three of the last five years.
Tax Write-Offs
A portion of virtually everything you do as a freelancer is eligible to be considered a tax write-off, providing it’s connected to the business. Meals, entertainment, business related automobile expenses, including parking fees and miles driven, are all genuine business expenses. In addition, you can take a portion of the value–called depreciation–of the equipment you use for your business, such as computers, fax machines, tape or digital recorders or any other valid business related gear, as a tax write-off. Usual office supplies, such as pens, pencils, paper clips, envelopes or paper are also valid business deductions. Other things that are legal to write-off are postal expenses, such as stamps and packaging material, and the cost of any business related conferences or seminars you took part in, as well as any fees for professional organizations you belong to. The costs associated with subscriptions to professional literature related to the business are also tax deductible.
Working from Home
If you have an office dedicated to your business, then the expenses associated with running that office are tax deductible. However, many freelancers work from home. The good news is that you can still write-off your office expenses. The bad news is that you must have a dedicated office space in your home–a place set aside exclusively for your freelance writing business. It also needs to be used on a continual basis for business purposes. Merely setting up a laptop on the kitchen table doesn’t qualify as office space. For further information on qualifying for tax deductions for people working from home visit the IRS website, www.irs.gov, and check out Publication 587.
Be Organized
The best way you can ensure your freelance writing business thrives is to be as organized as you possibly can. By being structured in your thoughts and actions, you’ll be aware of how much money you spend, and what you spend it on. Cutting expenses is a time-honored way of making a profit, but by taking special note of the expenses that are tax deductible and taking every deduction you’re entitled to, your profit margin will also rise. By consulting with a tax attorney or an accountant, you can make sure you know what can and cannot be considered a legitimate tax deduction.
Guest post from Bailey Harris. Bailey writes for www.insurancequotes.org, a site that provides quotes for car insurance.