The Freelancer’s Guide to Tax Deductions

Caroyln O'Hara for LearnVest.com writes:  Freelancing can be stressful during the best of times—but it’s never more so the case than at tax season.  By some counts, there are as many as 42 million independent workers in the U.S. today. But come spring, whether you’re freelancing as a management consultant, web developer, journalist or something else entirely, you may be asking yourself one crucial question: What can I deduct on my taxes this year?

That’s why we asked Jonathan Medows, a New York City–based certified public accountant who specializes in taxes for freelancers, to help us explain how deductions work for this group of workers, what to keep in mind when figuring out what to deduct as a freelancer, and which expenses typically qualify toward those deductions.

Deductions 101: How Do They Work?

Once you’ve accounted for all of last year’s income (whether it came with a 1099 or not), the next step is to start chipping away at that income through—you guessed it—deductions.

A tax deduction is an expense that you can subtract (aka “deduct”) from your overall taxable income, exempting that cash from taxation and subsequently decreasing the overall amount of money that’s subject to tax. “The whole point of deductions is to reduce your tax liability,” Medows explains. “So if you have $100,000 of freelance income, and $20,000 of expenses that you can deduct, your tax will only be based on $80,000 of profit.”

That said, tax preparation for freelancers “gets very complicated very quickly,” Medows cautions. So while we’re able to give you some general guidelines and things to keep in mind when thinking about deductions, only a professional familiar with your finances will be able to give you proper tax advice tailored to your specific situation. -SNIP-

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Want to learn more about doing your taxes as a freelancer? Visit the Self-Employed Individuals Tax Center at IRS.gov.