Freelancers can really benefit from knowing all the possible deductions and paperwork to fill out for Uncle Sam.
First, a disclosure: I’m not a tax professional. Until I decided to strike out down the path of self-employment, my tax knowledge extended only to the minimal requirements of the 1040EZ. Though I’m sharing what I learned from my own adventures in becoming a freelance writer and artist, please consult a professional to make sure your taxes are prepared correctly. The main idea is being proactive, and professional advice is the most proactive effort of all.
Not only was my tax knowledge minimal, the idea of learning how to manage my own taxes made me somewhat nauseous. I knew deductions were a good thing, but I really didn’t understand why. I’ve always been a cash-in-hand kind of person; my taxes were handled through my company, and I only cared about the cash I got from my weekly paycheck. It wasn’t until I had to handle my own taxes and could see deductions in a practical, earnings-oriented way that they became less mysterious. Once that transition took effect, I became a deduction hound.
Keep Good Records
The name of the game is receipts and records. Knowing what is deductible is essential, but all is for naught if you don’t get receipts and keep track of the money. And by receipts, I don’t mean bank account records or credit card statements. You need a receipt from the vendor with the date you made your purchase and what exactly your purchase was. I even go so far as to make a little note on each receipt as to why the purchase pertains to my work, (i.e., why it is deductible). If you pay with a check, use the memo line.
I also keep a ledger that records business-oriented transactions, so I can compare receipts to entries to make sure everything is in order. Another route to consider is using a separate credit card or debit card solely for business transactions.
Discover Your Specialized Deductions
As a writer and an artist, I have some unique deductions: art supplies (note: only those used over the course of the year for work sold), rent and utilities at my studio space, fees for agents, entrance costs for juried shows, rental fees to show in galleries, and dues for professional organizations.
While the IRS does not allow you to deduct the cost of your commute from home to work, you are allowed to deduct travel costs from one place of work to another. This is where a home studio is a big benefit. If you are working at home and have to travel to a gallery for an installation or for a work-centered meeting, those expenses can be deducted. Additionally, for longer work-related travel, you can deduct your travel expenses and food costs while traveling.
Depreciation can be a Game Changer
I also learned of a little thing called depreciation. The basic idea is the cost of property you buy for your work that does not get used up within a single year can be deducted in increments over several tax periods. (It’s tricky; you may want to consult an expert.) Things like computers, cameras, and other machinery used in your creative process apply. For most depreciation deductions, tables and methods help determine the percentage of cost that is deductible each year, so it takes some professional finesse to figure out which method works best for your taxes and finances.
Deduct Everything that Relates to Your Work
If you grew up in a small town like me, it can be hard to be exposed to new art. Theaters outside of larger cities are almost non-existent. I’ve always found gallery openings and readings to be essential—not only for inspiration but also to research the possibilities of what my art can be. The problem was that I would have to travel several hours minimum to get to the nearest major museum or any sort of flourishing art scene. The cost prohibition was infuriating.
But I found out that these things are also deductible. Admission and travel is essentially reimbursed come tax time. That wouldn’t be the case if I were a plumber or an accountant—but it is for an artist.
While the tax code can be daunting and the jargon like a foreign language, it’s advantageous for freelancers to contact a professional and set out to reign in their taxes. The main objective is keeping good records. Organize your spending and get receipts. Keep your eyes open; research what you can use to save money and maintain working success. The IRS website has loads of information, and your local accountant will be ready to help.
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