The Internal Revenue Service (IRS) has set Monday, Jan. 29, 2024, as the official start date of the nation's 2024 tax season when the agency will begin accepting and processing 2023 tax returns.  The time is now to review deductions and start organizing your business records for the 2024 filing season in order to get ahead of the April 15 tax filing deadline.

Expecting a freelance tax refund? Start organizing your tax return documents to expedite the tax preparation process and get any potential refund sooner:

• Gather and organize tax records including prior year tax return, this includes Social Security numbers, Individual Taxpayer Identification Numbers, Adoption Identification Numbers and, if you have one, an Identity Protection Personal Identification Number.
• A listing of the estimated tax payments you made to the IRS and other state and local entities (list out the entity which paid, the date paid, and the amount paid).
• 1099s, W-2s, and any other documentation related to your freelance income. All freelance income must be reported, even if you don’t receive supporting documentation.
• Statements for any qualified retirement contributions you made into a Simplified Employee Pension Plan (SEP) IRA or other pre-tax retirement investment vehicles.
• Receipts for any deductions that you claim for supplies, meals, travel and other business-related expenses. 
• See the list of potential deductions below for other documentation you may need to complete your freelance tax preparation.

If you expect a tax refund, the easiest way to check your refund's status is by using Where's My Refund? on IRS.gov or the IRS2Go app. Under the federal Protecting Americans from Tax Hikes (PATH) Act, the IRS cannot issue Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) refunds before mid-February. 

16 Key Freelance Tax Deductions to Reduce Your 2023 Self-employed Tax Obligations

As you begin planning for tax filing, review the list below to ensure you are getting all the business deductions to which you are entitled.  As always, if you need assistance, speak with a self-employed tax professional. 

If you are expecting to owe taxes on your 2023 freelance tax return, you will want to reduce your taxable income as much as possible with eligible business deductions. This list is a good starting reference point:

1. Startup costs - deductible up to $5,000

Small business owners may take a startup cost deduction of up to $5,000 in startup costs in their first year of business. This can include legal fees, employee training, and market research.  You can only take this $5,000 deduction ‌if your total startup costs are $50,000 or less. If your startup costs exceed $50,000, you'll see a reduction in your allowable deduction. If your startup costs are over $55,000, you won't be able to take the deduction.

2. Home office - deductible varies 

Small business owners who work from home or have a dedicated home office can take this deduction. The deduction amount depends on the percentage of the home you use for business purposes. There are two methods for determining your home office deduction:

1. Simplified method (Square feet of your home office x $5.00). This method is the easiest for home office deductions. You can deduct $5.00 per square foot of your home office space, but only up to $1,500. So, even if your home office is over 300 square feet ($5 x 300 square feet = $,1500), you can only take $1,500 as a deduction.
2. Standard method (Square feet of your home office / total home square feet) x home expenses). The standard method is a bit more complicated, but it also means you can deduct more expenses. With the standard home office deduction, you’ll need to keep track of all your home expenses. This includes the cost of home repairs and upkeep, as well as rent and utilities.  

Using this method for example, say your home office is 300 square feet and your home is 1,500 square feet. Your total home expenses for the year were $10,000. Your deduction would be $2,000, or (300 / 1,500) x $10,000. forget that you can also deduct any home office supplies and furniture you. 

3. Retirement plan contributions.

Making contributions to retirement accounts is a smart move for your financial future - and they are business write offs.. The amount you can deduct depends on the type of plan you have or set up. For example, the limits for 2023 are:

• 401(k) plans: $22,500 ($30,000 if you’re 50 or older)
• Simple IRAs: $15,500 ($19,000 if you’re 50 or older)
• Traditional IRAs: $6,500 ($7,500 if you’re 50 or older) 

Matching contributions: Those contributions made to your employees’ accounts are tax deductible, to a limit. The total limit for a 401(k), including employee and employer contributions, is $66,000 for 2023 ($73,500 if you’re 50 or older).

4. Asset Depreciation.

Depreciation is a tax break that allows businesses to write off the cost of certain assets over time. This can include equipment, vehicles, and property. For most assets, nearly the entire purchase price is tax deductible over time. By spreading out the cost of these assets over several years, businesses can reduce their taxable income and lower their tax bill.  This can result in large savings and is easily overlooked.

5. Certain meals can also be a small business deduction in two different ways:

1. Meals for employees/company-wide social events:  These are 100% tax deductible, such as food for holiday parties. 
2. Business meals:  These are 50% tax-deductible for clients or prospects. The meal must be business-related, reasonably priced, and you or an employee must be present. You can also deduct 50% of meals you purchase from a restaurant during the course of business travel.

6. 1099 deductions for contractor-provided services.

If you hire a contractor or freelancer, you can deduct the entire cost. For example, if you pay a freelancer $1,500 for work on your website. The entire $1,500 is fully tax-deductible. These 1099 write-offs can reduce your tax liability, whether you’re a business owner or a freelancer. If you’re a freelancer or contractor who receives a 1099-NEC, you may be eligible for certain 1099 deductions, such as claiming part of your self-employment tax as a deduction.

7. Business travel is 100% deductible.

If you need to travel out of town for business, the cost of getting to and from your destination is tax-deductible including mileage at 67 cents per mile in 2024; it was 65.5 cents in 2023. Lodging expenses are also 100% tax-deductible. 

Deductible costs also include plane tickets, hotels, rental car costs, parking fees, cost of taxis or ridesharing, etc. Business must be the main purpose of your trip but if it includes personal costs as well, keep records of your business travel expenses separately.

8. Gifts - Maximum deduction of $25.00/person.

Gifts for clients, customers, and employees are deductible. But there’s a catch—the limit is $25.00 per person. Promotional items with your company's name, such as calendars or pens, don’t count toward that limit if they cost $4.00 or less.

9. Auto expenses - 100% or percent of vehicle usage deductible.

Small business owners can deduct auto expenses, even if it’s their own car. If the vehicle is solely for business use, all costs are tax-deductible. If you use the car for business and personal activities, the standard mileage rate or actual expenses method will determine the deduction amount. Here is how to calculate it: 

As noted above, the standard mileage rate for 2023 is $0.655 per mile. The standard mileage rate is the easiest. You track your miles and multiply that by the IRS standard mileage rate. For example, if you used your personal vehicle to drive 5,000 miles for business, your deduction would be $327.50, or 5,000 x $0.655. 

Another way to take a business vehicle deduction is through the actual expense method which is calculated like this:

Total vehicle expenses x business miles divided by total miles.

The actual expense method means you track all vehicle-related expenses, such as insurance, fuel, and maintenance. You’ll also track your miles driven for business. Your deduction amount will be the total expenses for your car multiplied by the percentage of business-related miles.

10. Business taxes are deductible.

This includes taxes you pay for payroll, such as Social Security and Medicare taxes.  Other examples include: (1) State and local income tax, (2) Sales tax for business purchases; and (3) Real estate tax for business property.

11. Charitable contributions, review rules for accurate deductions.

There are tax breaks available for small businesses that make charitable contributions including the following:

•  100% of charitable contributions are deductible if it's on their personal taxes. Small business owners that run sole proprietorships, partnerships, or limited liability companies (LLCs) can take advantage of this.
• 25% of the contribution is deductible if the business operates as a corporation.

12. Rent and utilities are 100% deductible. 

​​Rent payments for business properties:  The deduction includes offices, storage, warehouse, etc.   If you have an agreement to buy the property at some point, you cannot deduct rent payments. The property must be exclusively for business purposes.  If you use any part of the property for personal purposes, the rent payments may not be fully deductible.

13. Interest on debts related to your business.

Interest that your business pays on debt, such as loans or credit cards, is tax-deductible. Your business must be legally liable for the debt. Businesses with revenue of $27 million or less can deduct 100% of their interest expenses. For all others, there is a limit on the tax deductibility of interest expenses. The deduction cannot be above 30% of your taxable income. 

14. Salaries and wages that you pay your employees.

This includes salaries, wages, bonuses, and benefits. However, salaries must be reasonable and ordinary.  In order to qualify for deducting employee compensation costs, small business owners must properly document all payments, including keeping detailed records of hours worked, pay rates, and any additional benefits or bonuses.

15. Legal and professional fees, Business Insurance, and Health Insurance are all 100% deductible.

1.  Legal/Professional fees:  Assuming they’re necessary for your business they’re all deductible. Deductible legal fees can be for such things as: (1) tax issues, (2) discrimination claims; and (3) business sales.  Legal fees unrelated to your business, such as those for personal matters or hobbies, are not deductible.
2. Business Insurance:   Insurance premiums are 100% deductible. This includes all types of insurance you may need to run your business. Examples of eligible insurance include: (1) liability; (2) workers' compensation; (3) auto; and (4) property.
3.  Health Insurance:  Small businesses can deduct the entire cost of health insurance premiums for their employees.  To be deductible, however, employers must generally pay 50% or more of their employees’ premiums.  Self-employed individuals, including independent contractors, freelancers, and sole proprietors, can also deduct 100% of the health insurance premiums they pay for themselves and their families.

16.  Subscriptions, Internet/phone, Education, and Marketing/Advertising - 100% deductible

1. Subscriptions:  This includes subscriptions to software services, trade publications, and online resources that are necessary for your business. 
2. Phone/Internet:  These expenses for small businesses are eligible for deductions. All phone or interest usage for your business is tax deductible. If you use your phone and internet for both personal and business, only business-related use is deductible.
3. Education: The IRS offers tax breaks for small businesses that pay for education expenses. To qualify for the education deduction, the costs must add value to the business and improve or maintain necessary skills. Examples include classes, workshops, seminars, publication subscriptions, books.
4. Marketing/Advertising: These include expenses for campaigns to generate or retain customers such as:  (1) ads on social media platforms; (2) newspaper and TV ads; and (3) sponsoring events or conferences. Be sure to retain records of all marketing expenses including receipts, invoices, and payments to verify the costs.

Now is the time to start getting your freelance tax documentation together so you can check it off your to-do list and file your taxes in a timely fashion. Be sure to track your deductions, and if you have trouble efficiently gathering tax documents, start systematizing your documentation process now to make it easier next year.

Simplify your freelance taxes and take advantage of tax breaks with professional help.

Getting a head start on tax season can help you alleviate the burden of preparing your freelance taxes. By working with a tax professional you can ensure that you can take advantage of new tax breaks and all of the ones you are entitled to. 

If you have questions about your freelance taxes, you owe taxes or you have back taxes and unfiled returns, it is advisable to speak with a self-employment tax professional to ensure you receive accurate advice that is specific to your individual tax situation.